What a term sheet actually says

Pre-money valuation, amount raised, and post-money valuation define the headline. Post-money is pre-money plus the raise, and the investor's ownership is the raise divided by post-money. Confirm whether any option pool is included in the pre-money figure, because that quietly lowers the real price you are getting.

Watch for a valuation that arrives paired with unusual structure. A high headline number attached to heavy preferences is often worse for the founder than a lower clean price, and it is offered precisely because founders anchor on the headline.

The liquidation preference determines who gets paid first in a sale. A one-times non-participating preference — the market standard for a healthy round — means the investor takes either their money back or their ownership percentage, whichever is larger. It is fair and rarely controversial.

Participation changes the arithmetic. A participating preferred investor takes their money back and then shares in what remains, effectively getting paid twice. Multiples compound the problem: a two-times participating preference on a large round can consume most of a mid-sized exit before common shareholders see anything. These terms show up most often in difficult markets, and they are the terms worth spending your negotiating capital on.

Board composition is control. A common early structure is two founder seats, one investor seat, and one mutually agreed independent seat, which keeps founders in the majority. Ceding investor control of the board means the people who can replace the chief executive are no longer people you appointed.

Protective provisions are a separate lever: a list of actions requiring investor consent, typically selling the company, raising more money, changing the share structure, or taking on debt. A reasonable list protects a minority holder from being steamrolled. An expansive one turns ordinary operating decisions into negotiations.

Pro rata rights let an investor maintain their percentage in future rounds. This is usually fine and often desirable, but a crowded cap table full of pro rata rights can leave no room for the new lead you actually want in the next round.

Anti-dilution protection adjusts an investor's price downward if you later raise at a lower valuation. Broad-based weighted average is standard and mild. Full ratchet reprices their entire holding to the new lower price and can be devastating to founders in a down round; it belongs on the list of terms to resist.

Investors typically require founder shares to vest over four years with a one-year cliff, often with partial credit for time already served. This is genuinely reasonable — it protects the remaining founders as much as the investor — but negotiate the credit for prior service and acceleration on a change of control.

If you can only win three points, take clean preference terms, board composition that keeps you in the majority, and standard anti-dilution. Valuation matters less than most founders believe, because a fair price with hostile structure loses to a lower price with clean structure in almost every scenario short of a spectacular exit.

Offers in Garage to IPO surface the amount, the valuation, the dilution, and the option pool, and you can push back on any of them at any stage. Pushing on a strong quarter usually improves the deal; pushing on a weak one can cost you the offer entirely.

That trade — the risk of losing a round against the value of better terms — is the same judgement call the real document forces, compressed into a single decision.