Question 1

What actually matters in a term sheet?

Accepted Answer

Far less than the valuation, and far more than founders expect. A term sheet is mostly **non-binding**, but it sets the terms everything else follows from, and the economic and control clauses matter more than the headline price.

**The economic terms:**

**Valuation and amount**, on a stated pre- or post-money basis.

**Liquidation preference.** What investors receive before anyone else on a sale. A **1x non-participating** preference — return their money first, or convert to ordinary shares and take their percentage, whichever is better — is the market standard and is reasonable. **Participating** preferences let them take their money back **and** their percentage, which substantially changes outcomes at modest exit values. Multiples above 1x are aggressive.

**Anti-dilution.** Protection if a later round is priced lower. **Broad-based weighted average** is standard and moderate; **full ratchet** is severe and repricing the investor's entire holding at the new lower price can be devastating for founders.

**The option pool**, and whether it sits pre- or post-money.

**The control terms, which founders consistently underweight:**

**Board composition.** How many seats each side appoints, and who has the casting vote. This is where real control lives.

**Reserved matters (veto rights).** A list of decisions requiring investor consent — raising money, selling the company, changing the business, exceeding budget, hiring above a salary threshold. **A long list can leave founders unable to act on ordinary matters**, and the list is negotiable.

**Drag-along and tag-along.** Drag lets a majority force minority holders to sell; tag lets minorities join a sale on the same terms.

**Information rights** and reporting obligations.

**Founder terms:** vesting, sometimes restarted; leaver provisions; and restrictive covenants.

**What is usually binding** even though the rest is not: exclusivity or **no-shop** clauses preventing you talking to other investors for a period, and confidentiality. Read those carefully, since a long exclusivity period with no deal leaves you months of runway worse off.

**Take proper legal advice** from someone who does venture deals regularly.

General information, not legal advice.

Question 2

What is a liquidation preference?

Accepted Answer

The right of certain shareholders — almost always investors — to be paid first when a company is sold or wound up, before ordinary shareholders receive anything. It is frequently the single most

Question 3

What is vesting, and what is a cliff?

Accepted Answer

Vesting means equity is earned over time rather than owned outright from day one. A cliff is an initial period during which nothing vests at all. The standard arrangement. Four-year vesting with a

Question 4

What is a cap table?

Accepted Answer

A capitalisation table records who owns what proportion of a company — every shareholder, every class of share, every option and everything that could become a share. What it contains: Every

Question 5

What is the difference between pre-money and post-money valuation?

Accepted Answer

Pre-money is what the company is agreed to be worth before the investment; post-money is pre-money plus the money invested. The difference determines what percentage the investor gets, and confusing

Question 6

What should actually be in your terms and conditions?

Accepted Answer

The terms that govern what happens when things go wrong — because when everything goes right, nobody reads them. A contract is a risk allocation document, and the clauses that matter are the ones

Question 7

What are the realistic exit options for a business?

Accepted Answer

Fewer and less glamorous than the coverage suggests. The overwhelming majority of successful exits are trade sales, and several perfectly good outcomes are not exits at all. Trade sale (acquisition).

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