Your first term sheet is a four-page document. About 80% of it is boilerplate that hasn't materially changed since 1995. Roughly seven items decide whether you're getting a good deal or a tolerable one. Spend your negotiating capital there and concede the rest.

The four numbers

1. Pre-money valuation

This is the headline. It also matters less than you think. The number that actually determines your dilution is the post-money valuation (pre-money + round size), and even more precisely, the **price per share** that results.

Two examples that look the same on the headline:

  • $5M raised at $20M pre-money, with a 12% option-pool top-up coming from pre-money → effective pre-money is $17.6M.
  • $5M raised at $20M pre-money, with the 12% top-up coming from post-money → effective pre-money stays at $20M.

Both rounds say "$25M post-money." Your dilution differs by a few percentage points. That's real money over a five-year time horizon. Always solve for the share-price math, not the headline.

2. Option pool size

The lead will name a target option pool — usually 10–12% post-round for Series A. Almost always, the term sheet specifies the top-up comes from the pre-money cap table, which dilutes you and existing investors, not the new lead.

Push back on two things:

  • Size. If your current pool plus reasonable hiring through the next round needs 8%, don't accept 12%. The lead will defend the larger number ("standard"). Counter with your concrete hiring plan and proposed grants. They will often settle in the middle.
  • Source. Some leads will agree to take part of the top-up from post-money in exchange for valuation. This is a real concession; quantify what it means in points of dilution before you trade it away.

3. Liquidation preference structure

The default for venture deals is 1× non-participating preferred. Memorize that phrase. It means the investor picks the higher of (a) their money back, or (b) their pro-rata share of proceeds as if they had converted to common. Not both.

Any of the following are flags:

  • Multiple preferences (2×, 3×) — almost certainly not a deal you want.
  • Participating preferred — they get their money back **plus** a pro-rata share. Sometimes acceptable with a cap (e.g., "participating up to 3× then converts").
  • Senior to existing preferred — they get paid before earlier investors. Disruptive to your prior investor relationships; expect pushback from them.

Default of 1× non-participating means you can almost always pass this section. Anything else, slow down and ask why.

4. Anti-dilution flavor

The default is broad-based weighted-average. Memorize that phrase too. It means a down round triggers a partial price adjustment for existing preferred holders — fair to everyone.

Refuse:

  • Full ratchet — preferred re-prices to the lowest subsequent price, regardless of how dilutive. Punishing in any down-round scenario. The only place it appears is distressed financings.
  • Narrow-based weighted-average — a smaller denominator that triggers larger adjustments. Less common but worth catching.

If the term sheet says "broad-based weighted-average," check that box and move on. If it says anything else, you have one meaningful conversation to have.

The three rights

1. Board composition

For your Series A, the typical structure is: two founders + one lead investor + one independent (mutually agreed). This is a 3:1 founder-friendly tilt, with a tie-breaker the lead has to agree to. It's the structure most leads will accept unless they're being aggressive.

Aggressive variants:

  • Two investors on the board — only acceptable if there are two co-leads writing real checks.
  • No independent — leaves you and the lead one-on-one. Acceptable but limits your governance options later.
  • A board observer for every Series A investor — observers don't vote, but they show up to every meeting. Cap observer slots if asked for several.

2. Protective provisions

These are the matters that require preferred-class approval. Standard scope:

  • Amending the certificate of incorporation
  • Issuing senior preferred stock
  • Taking on debt above a threshold
  • Selling or merging the company
  • Increasing the option pool above a defined size
  • Paying dividends

Push back if any of these appear:

  • Approve hiring or terminating executives — this is operational; investors should not be in your management chain.
  • Approve any contract above $X — pulls them into deal review; only acceptable at very late stages or in regulated industries.
  • Approve marketing or product decisions — never appropriate.

Protective provisions are usually class-level, meaning a majority of the preferred class (not the lead alone) has to approve. Confirm this; investor-by-investor consent is unusual but appears in poorly drafted sheets.

3. Information rights

The lead will get reasonable info rights: monthly financials, annual audited financials, board materials, and reasonable inspection rights. Standard, accept.

Two adjacent rights are worth noticing:

  • Pro-rata rights — the right to invest pro-rata in future rounds. Standard at Series A; you concede this. The dilution you'd reverse-engineer to give them their pro-rata in the next round is already baked into their target ownership.
  • Major investor threshold — most rights apply only to "major investors" above a check-size threshold (e.g., $1M+). Make sure this threshold is set so small angels and pro-rata-only investors aren't getting info rights they don't need.

Two things you almost always concede

  • Drag-along rights. Majority preferred can force minority holders (including founders/common) to vote for an approved sale. This prevents holdouts from blocking your exit. The default thresholds (majority of preferred plus board approval) are reasonable.
  • ROFR and co-sale. Combined right that gives the company and preferred holders the option to buy or join any secondary sale. Standard; rarely binding pre-IPO.

How to use this list

When you get your first term sheet, mark up these seven items first. For each, decide if you're accepting market terms, pushing back, or noting it for clarification. Send your counter back in 48 hours with redlines on these seven, and leave the rest of the document alone.

This isn't the only conversation you'll have with your lead. But it's the one that decides what your cap table looks like in three years. Worth the focused attention.