Term Sheet Negotiation Position Checklist

CHECKLIST · 30 ITEMS · 25 MIN

Term Sheet Negotiation Position Checklist

A 30-item founder negotiation position checklist for VC term sheets — valuation-economics, governance-control, founder protection, closing-mechanics. Market positioning and red flags benchmarked against NVCA standards.

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SECTION 1 8 ITEMSValuation and Economics SECTION 2 8 ITEMSGovernance and Control SECTION 3 8 ITEMSFounder Protection SECTION 4 6 ITEMSClosing and Mechanics

SECTION 1 · 8 ITEMS

Valuation and Economics

How the round prices, who gets what at exit, and what compounds across rounds. Misjudge these and value transfers permanently away from the founder.

01Pre-money vs post-money valuationPre-money excludes round proceeds; post-money includes them. NVCA standard expresses dilution as post-money %. Confirm which number the term sheet quotes.

02Option pool shuffle positionStandard term sheet sizes the pool BEFORE the round at founder cost (existing shareholders dilute). Push for post-round pool sizing to share dilution with new investors.

03Liquidation preference structure1x non-participating preferred is market standard for Series A. Participating preferred or >1x preference is a red flag. At exit, founders model the difference.

04Pro-rata rights (Series A and later)Investors negotiate pro-rata rights in next round at no additional cost. Cap pro-rata at major investors only; super pro-rata is concession territory.

05Anti-dilution mechanismBroad-based weighted-average is market standard. Narrow-based weighted-average is unfriendly. Full-ratchet is a red flag — kills founder equity on any down round.

06Preferred dividend rate and accrualCumulative dividends compound at preferred dividend rate (typically 6-8%). Non-cumulative is founder-friendly. Verify dividend mechanic at exit modeling.

07Conversion mechanics — voluntary and mandatoryVoluntary conversion at investor’s option. Mandatory conversion typically at IPO threshold ($50M+ raised) or supermajority preferred consent.

08Drag-along threshold and protectionsDrag-along forces minority to sell on majority + board terms. Threshold typically 60-75% of preferred + board approval. Carve out founder protections.

SECTION 2 · 8 ITEMS

Governance and Control

Who controls what after closing. Board composition and protective provisions matter more than the percentage — board controls execution, protective provisions control direction.

09Board composition frameworkStandard Series A: 5-seat board — 2 founder, 2 investor, 1 independent. Avoid investor-majority board pre-Series B. Track each seat through subsequent rounds.

10Founder vote thresholdsMajor decisions (sale, dissolution, charter amendment, debt above threshold) typically require investor + founder approval. Establish clear founder voting power.

11Protective provisions (Series A approval matters)Standard list: charter amendment, share issuance, sale, dissolution, key hires, budget approval, debt above threshold. Investor consent on all = investor control regardless of board %.

12Investor information rightsQuarterly financials, annual audited financials, board minutes, budget. Beyond annual budget approval = micro-management risk.

13Board observer rightsObservers attend without voting. Multiple observers = practical board influence. Cap at 1 observer per major investor.

14Founder vesting and cliff resetSeries A typically resets founder vesting — 4-year vesting with 1-year cliff. Negotiate vesting credit for time already at company (often 50-100% credit).

15Right of first refusal and co-saleROFR on founder share transfers (investors get first dibs). Co-sale lets investors join founder secondary. Standard mechanics, terms negotiable.

16No-shop exclusivity and termExclusivity prevents shopping during diligence. 30-45 days standard. Avoid >60 days, automatic extensions, and broad scope (no investor outreach).

SECTION 3 · 8 ITEMS

Founder Protection

Specific provisions that determine the founder’s outcome — at exit, in dispute, on termination. These don’t get negotiated harder later.

17Founder vesting acceleration on change of controlSingle-trigger (accelerate on acquisition) vs double-trigger (acquisition + termination within 12 months). Double-trigger is acquirer-friendly market norm.

18Founder vesting acceleration on termination without causeWithout-cause termination should accelerate at least 12 months of unvested. Stake the principle now — gets harder to add later.

19Founder employment terms — base, equity, severanceStandard founder employment: market-rate base salary, no separate equity grant (founder already holds), severance package on termination without cause.

20IP assignment and inventions clauseAll IP created in scope of employment assigned to company. Carve-outs for pre-existing IP listed. Independent inventions clarified separately.

21Non-compete and non-solicit durationNon-compete: 12 months post-termination market norm (jurisdiction-limited — TR unenforceable beyond 2 yrs). Non-solicit: 12-24 months. Verify enforceability in jurisdiction.

22Transfer restrictions on founder sharesFounder share transfers restricted (board approval + ROFR + co-sale + lockup periods). Permitted transfers carve out family planning, estate.

23Redemption rights — push back requiredRedemption forces buyback after holding period. Strong founder push-back required — redemption rights can trap company in distress sale. Better: no redemption.

24Dispute resolution and governing lawDelaware (US flip-up) or English law (Cayman/UK) standard for cross-border. Arbitration vs court — arbitration faster and confidential. Carve-out IP and injunctive relief.

SECTION 4 · 6 ITEMS

Closing and Mechanics

From signed term sheet to wired funds. Mechanics here often slip through as ‘standard’ but materially affect risk and timeline.

25Definitive documents preparation timelineStock Purchase Agreement, Investor Rights Agreement, Right of First Refusal Agreement, Voting Agreement, Charter amendment. Typical: 4-8 weeks term sheet to close.

26Conditions to closingEach side’s conditions: regulatory approvals, due diligence completion, audited financials, IP assignment confirmations, key-employee retention agreements.

27Representations and warranties scopeStandard reps: corporate authority, capitalization, IP ownership, material contracts, employee matters, taxes, no litigation. Survival typically 12-24 months.

28Indemnification cap and basketCap typically 10-15% of investment. Basket (deductible) 0.5-1% of investment. Specific indemnities (IP, tax, undisclosed liabilities) often uncapped or higher caps.

29Expense reimbursement and capInvestor legal expense reimbursement typically capped at $35-50K for Series A. Resist unbounded reimbursement. Founder legal expense paid by company.

30Most-favored-nation (MFN) clause carve-outMFN ties this round’s investors to future round terms. Limit to economic terms only — not governance, not informational rights. Sunset after Series B.

Decision Matrix — Is Our Term Sheet Position Sound?

How your checked items distribute shows your negotiation maturity:

Section 1 7+/8: Economic terms aligned with market norms. No value transfer.
Section 2 7+/8: Governance structure balanced. No investor seat-based control accruing.
Section 3 7+/8: Founder protections solid. Reasonable position at exit and on termination.
Section 4 4+/6: Closing mechanics clear. Timeline and cost predictable.
Section 1 weak, red flag (full-ratchet or >1x liq pref): Negotiation should reopen. Economic terms independently negotiable.
Section 2 weak, investor-majority board: Accepting now means accepting in subsequent rounds. Balance now.
Section 3 weak, vesting acceleration missing: At exit or termination, founder economics destroyed. Set clear position.
All four sections above threshold: Term sheet position mature. Proceed to closing.

Legal notice. This document is for informational purposes only and does not constitute legal advice. NVCA model documents, Delaware DGCL, Turkish TCC and other references are general references; applying them to your company requires evaluation by a lawyer experienced in VC transactions. Vircon Legal: [email protected]

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Term Sheet Negotiation Position Checklist

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Valuation and Economics

Governance and Control

Founder Protection

Closing and Mechanics

Decision Matrix — Is Our Term Sheet Position Sound?

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