How to negotiate a term sheet always on your terms by Aditi Shrivastava & Madhav Chanchani

TL;DR - advice on which term sheet clauses founders should look out for and/or definitely negotiate with investors

Helpfulness - 4

Tags - term sheet, term sheet negotiation, venture capital, term sheet advice, initial capital, financing, VC

Questions answered:

  • What are some term sheet clauses that founders should look out for and/or definitely negotiate with investors?

Summary:

  • Equity/valuation: more than 30% dilution is not advisable in any funding round.
  • Board sets: offer a maximum of one seat per round.
  • Hiring: be wary of clauses restricting founders from hiring staff without investor approval.
  • Expenses: negotiate hard on clauses requiring founders to get investor approval on any major expense.
  • Liquidation: remove or immediately negotiate if investors want a clause requiring founders to give them 1-1.5 times returns even if the company goes into liquidation.
  • Founder vesting: negotiate hard on clauses barring founders from leaving their companies under any circumstances for at least 5 years.
  • Discounting: negotiate any clauses calling for a discount in future funding rounds on valuation.

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