Founders raising for the first time often treat a term sheet as a single, intimidating whole. It is more useful to see it as mostly boilerplate with a few decisive terms scattered through it. Get those few right and the round is fair; miss them and the round can be quietly expensive long after the money lands.
1. Valuation and the option pool
Valuation is the number everyone talks about. The option-pool treatment sitting next to it is the number that changes what the valuation actually means. As we set out in our note on the option pool shuffle, a pool created pre-money is paid for by the founders. Read the two lines together, never apart.
2. Liquidation preference
The liquidation preference decides who gets paid first, and how much, when the company is sold. A 1x non-participating preference is market for most rounds in the region: the investor gets their money back or converts to their percentage, whichever is greater. Watch for participating preferences (the investor takes their money back and shares in the rest) and multiples above 1x. These rarely matter in a great outcome and matter enormously in a middling one.
3. Anti-dilution
Anti-dilution protects an investor if you later raise at a lower price. Broad-based weighted average is the reasonable, market position. A full-ratchet provision — which reprices the investor’s entire holding to the down-round price — is punitive and worth resisting hard.
4. Board and reserved matters
Control is not only about percentages. The board composition and the list of “reserved matters” — decisions the investor can veto — determine how much freedom you keep to run the company. A long reserved-matters list can mean asking permission to make ordinary operating decisions. Negotiate the list down to the things an investor genuinely needs to protect.
5. Drag, tag and founder terms
Drag-along lets a majority force a sale; tag-along lets a minority join one. Both are normal; the thresholds and carve-outs are negotiable. Look too at what the term sheet says about you: founder vesting, leaver provisions, and any restrictions on selling your own shares.
Spend your capital wisely
You cannot fight every point without exhausting the goodwill you will need after closing. The skill is triage: concede the genuinely market terms quickly, and spend your negotiating capital on the two or three that will actually shape your economics and control. Knowing which is which is most of what a good adviser brings to a round.
General commentary only, not legal advice. Market terms move — talk to us about what we are seeing on comparable rounds before you respond to a term sheet.
