Anatomy of a Term Sheet
Written by Harry Prabandham
Curated by Rubric Financial
1 / 5
Valuation & Economics
- Pre-money valuation is the company's value before the investment; post-money is pre-money plus the investment amount, and your ownership percentage is based on post-money
- The option pool is typically created or expanded before the investment closes, which means dilution comes from the founders' side, not the investors'
- Negotiate the option pool size based on a real 18-24 month hiring plan; investors will push for a larger pool to reduce their effective price per share
- Watch for 'post-money SAFEs' that dilute separately from the priced round. Model the fully diluted cap table including all outstanding SAFEs, notes, and the new option pool
Related Resources
IPO and Going-Public Readiness
A founder-focused walkthrough of IPO readiness, the S-1, direct listings versus traditional IPOs, and what changes once you are public.
Fundraising & EquityUnderstanding Milestone Tranches in Term Sheets
Why milestone-based funding tranches can kill your company, and how to negotiate terms that protect you if you miss a target by 5%.
Fundraising & EquityHow Long Does Fundraising Take?
Realistic timelines for each funding stage, when to start the process, and how to structure a fundraising sprint that creates competitive dynamics.
About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
More articles by Harry →Related tools and reading
Free Finance Templates
Board decks, models, and forecasts founders can reuse.
InsightWhat Founders Can Learn From the Airtable and Miro Acquisitions
Two of the best-known SaaS companies of the 2021 boom sold to Bending Spoons within five weeks, at 2.7x and 2.3x ARR. The headlines focused on the markdowns. The lessons for founders are in the deal math: which number is really the price, why cash on the balance sheet earns 1x, and who gets paid first.
GlossaryASC 842
GAAP standard requiring leases to be recognized on the balance sheet.
InsightFractional vs. Outsourced vs. Virtual vs. Part-Time vs. Interim CFO: What Actually Differs
Four of these five terms describe the same hire with different marketing. One of them describes something genuinely different. Here is how to decode the labels, compare the costs, and pick the right model.
GlossaryTag-Along Rights
Allows minority shareholders to join a sale on the same terms as majority shareholders.
Insight5 Accounting Mistakes That Tank Seed Rounds (and How to Fix Them Before Diligence)
Diligence rarely kills a seed round on the big questions. It kills it on a dozen small ones. These are the five bookkeeping mistakes that consistently surface during diligence and how to fix them before a term sheet is in hand.
Getting ready to raise?
See the reporting investors expect before diligence starts, and what a clean data room looks like when you walk in.
Want the full sample as a PDF?
No spam, ever. If the download doesn't start, email us.
Or talk it through:
