The Series A Term Sheet, Line by Line: A Founder's Anatomy of Every Clause That Actually Matters
A Series A term sheet is a two-page, non-binding document that will shape your company for the next decade. Founders who understand every line negotiate better outcomes. Founders who do not lose more to the fine print than they ever lose on valuation.
The valuation of the company before the new money comes in. Post-money = pre-money + new investment. Ownership sold = investment / post-money.
Standard. Not usually where the fight is. Where the fight is: the option pool.
The lead investor almost always requires the option pool to be topped up before the round closes, meaning the pool dilution comes out of the founders' shares, not the new money.
If they ask for a 15% post-money pool on a company that currently has 5%, the incremental 10% dilutes only the pre-money holders. On a $10M investment at a $40M pre, that pool shuffle is worth roughly $4M in effective valuation — real money, silent.
Negotiate the pool size based on the actual hiring plan for the next 18 months, not a round-number default.
The amount the investor gets back before the common stock (founders, employees) sees a dollar. Three flavors: 1x non-participating. Standard, founder-friendly. Investor gets their money back OR their pro-rata share of proceeds, whichever is greater. 1x participating. "Double-dip." Investor gets their money back AND their pro-rata share on top. Bad for founders. Push back hard. 1x preference (2x, 3x). Shows up in down rounds and distressed deals. Very bad. If you see this, the deal is probably not worth taking.
If a later round prices below the current round, the earlier investor's conversion price gets adjusted. Two flavors:
Broad-based weighted average. Standard. Adjustment is proportional to the size of the down round. Fair to both sides.
Full ratchet. Investor's price resets to the lowest subsequent price. Catastrophic to founders and later employees in a down round. Refuse.
Broad-based…
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