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Valuation, SAFEs & term sheets

Understand the paper before you sign it.

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What do the key terms in a term sheet actually mean? Term sheets split into economics (valuation, option pool, liquidation preference) and control (board seats, protective provisions, voting). The sca... Advanced 3 resources → How do SAFEs and term sheets differ in India versus the US? India can't use the plain US SAFE directly because of company-law constraints, so founders use the iSAFE (structured as compulsorily convertible pr... Advanced 3 resources → How do stacked SAFEs at different caps convert into a mess at my priced round? Every SAFE you sign at a different cap converts to equity at the priced round, and if you've raised on three or four caps over 18 months you can en... Advanced 3 resources → What is a liquidation preference and how can a 1x participating clause quietly gut my exit? A liquidation preference decides who gets paid first when you sell, and a 1x non-participating preference (investor gets their money back OR their ... Advanced 3 resources → An investor wants a pro-rata right. What am I giving up and is it standard? A pro-rata right lets the investor put more money in at your next round to keep their ownership percentage, and for a serious early backer this is ... Advanced 3 resources → What does a board seat in my term sheet actually let the investor do? A board seat gives the investor formal voting power over major decisions (budgets, hiring the CEO, selling the company, raising the next round), wh... Advanced 3 resources → How big should my ESOP pool be, and why does the term sheet always want it carved out pre-money? Investors almost always ask you to create or top up an ESOP pool (often 10 to 15 percent) before the money goes in, which is the option pool shuffl... Advanced 2 resources → What is an MFN clause in a SAFE and how can it come back to bite me? A Most Favored Nation clause lets an early SAFE investor automatically get the best terms you give any later SAFE investor, so if you raise the nex... Advanced 3 resources →
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