Inside a $2M seed term sheet I just closed and the three clauses that would have cost the founders $4M at exit.

I have reviewed six seed-stage term sheets in the last six weeks, different funds, different sectors, East Coast, West Coast, one even out of Sydney. Different headcount, different cap tables, different founder pedigrees but the same three dangerous clauses keep showing up.

That repetition is what made me sit down to write this. Six different lead investors all reached for the same playbook. Either there is a conference circuit I missed where someone is handing out a worksheet, or this is what current market terms became without me noticing.

I’m trying this out as the first issue of a new series for paid subscribers called Term Sheet Teardown. The format is operational. Open your own term sheet next to this article and compare clause by clause. The article is built to be used as a tool not read at bedtime.

One disclaimer up front. I am not a lawyer and this is illustrative, not legal advice. Hire a specialist VC-side firm before you sign anything, which is the first piece of advice these founders did not take.

Now the deal.

That last detail is the one that matters. A generalist startup lawyer is competent at incorporation, equity grants, and customer contracts. A specialist VC-side firm reads forty term sheets a week. The first lawyer is cheaper but the second lawyer is the one who would have stripped two of the three clauses below before the founders ever saw them. The choice of legal counsel is part of the structure that allowed this term sheet to land in the form it did.