Term Sheet Checklist
A checklist of the most important terms to look for and understand in a venture capital term sheet.
Key Term Sheet Clauses: A Founder's Checklist
A term sheet is a non-binding agreement, but its terms will form the basis of the final legal documents. Understanding these key clauses is critical.
| Term | What it Means | What is Founder-Friendly? |
|---|---|---|
| Valuation (Pre-Money) | The value of your company before the investment. | As high as you can justifiably negotiate. |
| Liquidation Preference | Determines who gets paid first in a sale. | 1x, non-participating. This is the market standard. Avoid participating preferred stock. |
| Option Pool Shuffle | How the ESOP pool is created. | A smaller pool (10-15%) created from the pre-money valuation is standard. |
| Board Composition | Who gets seats on your board of directors. | A small, balanced board where founders retain significant influence (e.g., 2 founders, 1 investor). |
| Protective Provisions | Investor veto rights on major decisions. | A standard, limited set of veto rights that don't impede your ability to run the business day-to-day. |
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