Anatomy of a Term Sheet
Written by Harry Prabandham
Curated by Rubric Financial
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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
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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.
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