What to do next
Model the exit, not just the headline valuation
Liquidation preferences determine who gets paid first and how much before common shareholders see anything. A higher valuation with an aggressive preference can leave founders worse off than a lower, cleaner one.
Read the control terms carefully
Board seats, investor consent rights over hiring, budgets, borrowing, and future financings determine how much freedom you actually retain. These are often more consequential day-to-day than the economics.
Get your own counsel — before signing the term sheet
Investor counsel does not represent you, and exclusivity provisions can bind you while diligence runs. Also confirm the company owns its IP and the cap table is clean, since both surface immediately in diligence.
Frequently asked questions
Is a term sheet binding?
Mostly not on the commercial terms, but provisions such as exclusivity and confidentiality typically are — and the non-binding terms set the anchor for the definitive agreements.
What is a liquidation preference?
The investor's right to be paid a defined amount before common shareholders on an exit. Its size and structure can dramatically change founder proceeds.
What is founder vesting?
An arrangement where founders earn their shares over time, so someone leaving early does not keep a full stake. It is common and normally reasonable, but the schedule and acceleration terms are negotiable.
Do I need my own lawyer?
Yes. The investor's lawyers act for the investor. Separate counsel for the company and founders is standard practice, not an insult.
This is general information, not legal advice. Laws vary by location and every situation is different — speak with a qualified lawyer about your specific circumstances.