Anatomy of a Term Sheet

Valuation & Economics

• Pre-money valuation is the company's value before the investment; post-money is pre-money plus the investment amount — 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