What investors usually ask for
Venture capital investment typically takes the form of preferred stock, which carries rights that common shareholders do not have. A liquidation preference decides who is paid first, and how much, when the company is sold, and its terms can change founders' outcomes more than the headline valuation does. Protective provisions give investors a veto over certain decisions, and board seats give them a voice in the rest. Anti-dilution protection adjusts the investor's position if a later round is priced lower. Each of these is negotiable to some degree, and market norms for them shift over time.
Earlier instruments and the cap table
Many companies raise early money through SAFEs or convertible notes before a priced round. Those instruments convert when the venture investment closes, and the way they convert, including any discount or valuation cap and whether they are measured before or after the new money, can dilute founders more than expected. Before signing a term sheet, model the cap table with every outstanding instrument, option, and promised grant. Undocumented promises of equity to early employees or advisors are a common surprise, and investors will want them resolved before closing.
Before you sign the term sheet
Most term sheets are largely non-binding, but a few provisions, such as exclusivity and confidentiality, usually are binding, and the economic terms rarely improve once agreed. We go through the term sheet with you clause by clause, explain how the preference and control provisions would play out in a few realistic exit scenarios, and identify which points are customary and which deserve a push. We also ask how this investor tends to behave on boards and in later rounds, since that matters alongside the paper. Founders who understand the terms going in are better placed to negotiate the ones that matter to them. If several investors are participating, also ask who negotiates for the group and whether any side letters are expected.
