Economics beyond the valuation
The headline valuation is only part of the economics. A liquidation preference decides how sale proceeds are divided before common holders receive anything, and whether that preference participates can change the outcome significantly in a modest exit. Anti-dilution protection adjusts the investor's conversion price if the company later raises at a lower price, and the formula chosen matters. The option pool, and whether it is counted before or after the investment is priced, affects founder dilution. Founders should model proceeds at several sale prices, not just the optimistic one. Dividends on preferred stock in venture deals are often non-cumulative, but cumulative terms do appear and can add to what is owed ahead of common.
Control terms
Board composition decides who directs the company, and venture agreements usually fix how many seats each group holds. Protective provisions give preferred holders a veto over specified actions, such as new financings, a sale, or charter amendments. Drag-along rights can require stockholders to support a sale the required holders approve. Founder vesting and acceleration terms affect what happens if a founder leaves or is removed. The investor rights, voting, and right of first refusal agreements should be read together with the charter, because they operate as a package. Information rights and pro rata rights for larger investors are usually set out in the investor rights agreement.
Negotiating the definitive documents
Most venture deals start from widely used model forms, and negotiation focuses on departures from them. Knowing which terms are typical in the current market and which are unusual helps you choose where to push. Have the term sheet, your current cap table, any outstanding SAFEs or notes, and existing stockholder agreements on hand. Founders should also look closely at any personal representations they are asked to make, since those can create individual exposure. Working from those, we go through the proposed terms and discuss which points are worth negotiating and which concessions might be expected in return.
