Investor playbook
Term-sheet anatomy for leads
📖 14 min read · 🎯 Lead-capable cheques · Updated April 2026
A clean term sheet is a recruiting tool. Founders compare yours to the next-best offer — every "non-standard" clause is a reason to pick someone else.
The two halves: economics and control
Every clause maps to one. Economics = what you get in an exit. Control = what you can decide along the way. New leads over-index on control; experienced leads negotiate hard on economics and let control align with stage.
Economics — what to ask for at seed
Liquidation preference: 1× non-participating
Standard. Anything more on a seed round signals you're untrusting. Save 2× participating for distressed deals.
Anti-dilution: broad-based weighted average
The fair version. Full ratchet is punitive and signals you don't believe in your own valuation.
Pro-rata rights
Yes — for institutional cheques. Cap at investors above 5% to keep the next round clean.
ESOP top-up
Required. 10–15% post-round at seed; 15–20% at Series A. Negotiate the size: founders push back on every percentage point because it dilutes them pre-money.
Control — what to ask for
Board seat
Yes for leads. At seed, structure as 3 seats: 1 founder, 1 lead investor, 1 mutually-agreed independent. Series A typically: 5 seats with 2 founders, 2 investors, 1 independent.
Protective provisions
Sale of company, fundraise, debt above $X, executive hires, related-party transactions. Standard. Don't add: budget approval (unless concerns), individual hire vetoes, product roadmap consent. Founders correctly hate these.
Information rights
Monthly financials, quarterly board pack, annual budget. Standard. No need to make this fancy.
Drag-along
Yes — triggers on majority preferred + majority common. Don't use investor-only triggers; founders will spot it and the deal will lose trust.
Founder vesting
Required. 4 years, 1-year cliff. Give 1 year of immediate credit for time already served — this is increasingly standard and shows you're a reasonable partner.
Standard vs. clean. "Standard" is whatever the market accepts. "Clean" is whatever a sophisticated founder would sign without flinching. Aim for clean — you'll close more deals.
The clauses to leave out
- Redemption rights. Founder-hostile, rarely enforceable, signals distrust. Skip.
- Senior preference stack. "Series A senior to seed" might apply at Series B+, but not at the seed term sheet.
- Founder removal clauses (beyond cause). Causes deal-breaking conversations. Use board control instead.
- Right to lead future rounds. Almost always controversial; negotiate later if needed.
The 5-line term-sheet email
Send the actual term sheet PDF, but lead with this in the email:
1. Pre-money: $14M · We invest: $1.5M · ESOP top-up to 12% pre-money
2. 1× non-participating liquidation, broad-based WAA, pro-rata standard
3. Board: 1 founder, 1 us, 1 mutually-agreed independent. Standard protective provisions.
4. Founder vesting: 4-yr / 1-yr cliff, with 1 year of credit for time served.
5. Sign by [date]. SHA targeted in 21 days. We're committed and ready to move quickly.
Negotiation posture
Founders sign with the lead they trust most, often before the highest-priced one. Posture matters:
- Be explicit about your reasoning. "We're asking for an 8% larger ESOP because we expect 4 senior hires before Series A — here's our math."
- Concede early on small things. If you don't actually need redemption rights or budget vetoes, drop them in round 1, not round 3.
- Hold the line on economics. 1× preference, broad-based anti-dilution, ESOP scope. Negotiate other things.
- Move at founder pace. Lawyers can drag a process for 6 weeks. You can't. Push your counsel; respond to founder counsel within 24 hours.
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