Term Sheet Negotiation 101: What’s Standard vs Negotiable

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Term sheets are where dreams get real—and where bad deals get locked in.

As a founder, it’s tempting to focus on valuation and wire dates. But if you don’t understand what’s standard vs what’s negotiable in a term sheet, you could sign away more than equity—you could lose control.

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In this post, I’ll break down:

• The anatomy of a term sheet
• What’s considered “market” at pre-seed, seed, and Series A
• What’s worth fighting for (and what’s not)
• How to negotiate without blowing up the deal
• Key red flags that should make you walk

By the end, you’ll know exactly where to stand your ground—and where to shake hands.

1. What Is a Term Sheet (And Why It’s Not Just Legal Jargon)

A term sheet is a non-binding summary of the key investment terms between you and a VC or angel investor.

It’s the blueprint for your deal.

It outlines:

• How much they’ll invest
• At what valuation
• What rights and control they’ll have
• What happens in good outcomes (exits) and bad (down rounds, liquidation)

Once you sign it, you’re locked into a power dynamic—even if the legals aren’t final yet.

2. The Core Sections of Every Term Sheet

Here’s what most seed-stage term sheets include:

SectionWhat It CoversValuationPrice per share, pre/post-moneyInvestmentSize of the check and cap table %Liquidation PreferenceWho gets paid first (and how much)Board StructureWho sits on your boardPro Rata RightsRight to invest in future roundsVoting RightsWhat decisions require investor approvalFounder VestingCliffs and re-vesting of founder equityOption PoolHow much is reserved for hiresDrag/Tag-AlongWhat happens in an acquisitionExclusivity & No-ShopTime-bound lockups

3. What’s Standard (Market) at Pre-Seed and Seed

Here’s a quick cheat sheet:

TermMarket StandardValuationDepends, but $3M–$15M post is typicalLiquidation Preference1x non-participating (clean)Option Pool10–15% pre-money is common (watch this)Board1 founder, 1 investor, 1 independent or noneFounder Vesting4 years with 1-year cliff (even for existing shares)Pro RataStandard for lead, optional for othersDrag-AlongUsually included—standardAnti-DilutionRare at seed—avoid full ratchet at all costsNo-Shop30–45 days is fair

4. What’s Negotiable (And Worth Negotiating)

Not all hills are worth dying on.

But these terms? You should absolutely understand—and negotiate:

🔥 Option Pool Placement

If it’s included before the round, it lowers your effective valuation.

Negotiate: Move it post-money, or reduce its size.

🔥 Board Seats

Avoid giving up majority board control too early.

Negotiate: 2 founder, 1 investor board at seed, or no board until Series A.

🔥 Founder Re-Vesting

Re-vesting is fine—but 100% re-vesting after you’ve built the company? Nope.

Negotiate: Partial re-vesting based on time served.

🔥 Liquidation Preference Stack

1x is standard. But participating or multiple? That’s investor-friendly.

Negotiate: Stick to 1x non-participating.

🔥 Super Pro Rata Rights

Gives one investor oversized rights in next rounds—can block future rounds.

Negotiate: Cap at their ownership %. Or limit to the next round only.

5. What’s Usually Not Worth Fighting (If Reasonable)

These are terms that matter less at early stage—or are often symbolic:

• Drag-along rights: Just ensure they’re proportionate and mirror founder control
• Tag-along rights: Standard protection for minority investors
• Right of first refusal (ROFR): Normal for early-stage shares
• Information rights: Standard (e.g., quarterly updates)

Pick your battles. Don’t get bogged down in legal ping-pong.

6. How to Push Back Without Blowing Up the Deal

Use this 3-step negotiation playbook:

1. Anchor With Market Standards

“From what we’re seeing across comparable deals, 1x non-participating is the norm at seed.”

2. Align on Long-Term Interests

“Our goal is to raise a strong Series A—terms like this could make that harder.”

3. Offer a Middle Ground

“We’re open to re-vesting 50% over 3 years, but full re-vesting feels misaligned.”

Be firm, but collaborative. You’re not adversaries—you’re long-term partners.

7. Red Flags That Should Make You Walk

🚩 Participating preferred + 2x liquidation preference
🚩 Full-ratchet anti-dilution
🚩 Investor wants majority board control
🚩 100% founder re-vesting
🚩 No-shop longer than 60 days
🚩 Personal founder guarantees
🚩 Weird clauses about “founder behavior” or penalties

Trust your gut—but bring in a lawyer who knows venture deals.

8. SAFE vs Equity: What to Know

At pre-seed and seed, most deals are on a SAFE (Simple Agreement for Future Equity), unless the investor leads priced rounds.

Key SAFE terms to watch:

• Valuation cap – Target 15–30% dilution
• Discount rate – 10–20% is standard
• MFN clauses – Can cause problems in stacked SAFEs
• Pro-rata rights – Should be explicit if promised

Want to go deeper?
Read: Everything I Need to Know About SAFEs

9. What Founders Often Miss in Term Sheets

• How option pool impacts post-money ownership
• Whether pro-rata rights extend past next round
• Who controls board decisions on hiring/firing CEO
• What triggers re-vesting or clawbacks
• What happens in a down round or sale under valuation

Always model the cap table before and after the term sheet is signed.

10. How to Prepare for Term Sheet Negotiation

Before signing anything:

✅ Hire a startup lawyer (not your friend’s divorce lawyer)
✅ Run the cap table scenarios
✅ Talk to other founders who’ve raised from the same investor
✅ Push back on non-standard terms
✅ Move fast, but don’t rush to sign under pressure

FAQs

1. Are term sheets legally binding?
Mostly no—except for exclusivity, confidentiality, and no-shop clauses.

2. Can I shop a signed term sheet?
Not if there’s a no-shop clause (which most include). That’s a legal and reputational risk.

3. What if an investor wants board control at seed?
Push back. You should retain majority control until at least Series A.

4. Can I use a SAFE and still negotiate pro-rata rights?
Yes. Just be sure it’s explicitly written in.

5. Should I use a lawyer for a pre-seed round?
Yes—especially for term sheets. Use one experienced in venture.

6. What happens if I get multiple term sheets?
Congratulations. Compare them side-by-side—valuation is just one part.

7. What is “participating preferred”?
It means investors get their money back and a % of what’s left. Avoid it.

8. How long should negotiation take?
1–2 days for minor edits, 3–7 days for major ones. Move fast, but review carefully.

9. What if I’m not sure if a term is fair?
Ask your lawyer. Or send it to trusted founder friends. Or… us.

10. Should I negotiate everything?
No. Focus on 2–3 key terms. The rest? Standard is fine.

Conclusion

Negotiating your term sheet isn’t about being aggressive.

It’s about protecting your upside, your team, and your long-term vision.

Know what’s standard. Know what’s toxic. And negotiate like the CEO you are.

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