How do you negotiate term sheet provisions?

1 Know your priorities

Before you enter the negotiation, you should have a clear idea of what your goals and expectations are, and what trade-offs you are willing to make. For example, you may care more about maintaining control over your board and strategic decisions than maximizing your valuation or minimizing dilution. Or you may prefer a simpler and cleaner term sheet with fewer provisions that could complicate your future financing or exit options. Knowing your priorities will help you focus on the most important issues and avoid getting distracted by minor details.

2 Do your research

You should also do your homework on the market conditions, the investors, and the industry standards for term sheets. You can use online resources, such as PitchBook, Crunchbase, or AngelList, to find comparable deals and valuations in your sector and stage. You can also leverage your network and mentors to get insights and feedback on the term sheet terms and the investors' reputation and style. Doing your research will help you benchmark your offer and negotiate with confidence and credibility.

3 Be flexible and creative

Negotiating a term sheet is not a zero-sum game, where one party wins and the other loses. It is a collaborative process, where both parties aim to reach a mutually beneficial agreement that aligns their interests and expectations. Therefore, you should be flexible and creative in finding solutions that address both your and the investors' concerns and objectives. For example, you can use different types of equity, such as preferred or common stock, or convertible notes or SAFE agreements, to balance valuation and dilution. Or you can use vesting schedules, milestones, or ratchets to align incentives and performance.

4 Communicate clearly and respectfully

Communication is key to any successful negotiation. You should communicate clearly and respectfully with the investors throughout the process, and avoid surprises or misunderstandings. You should also listen carefully and empathetically to their perspective and rationale, and acknowledge their interests and concerns. You should also be transparent and honest about your assumptions, projections, and challenges, and provide evidence and data to support your claims. Communication is not only about conveying information, but also about building trust and rapport.

5 Seek professional advice

Finally, you should seek professional advice from lawyers, accountants, or other experts who can help you review and understand the legal and financial implications of the term sheet provisions. They can also help you identify and avoid potential pitfalls or risks that could affect your rights or obligations in the future. You should also consult with your co-founders, advisors, or board members who can offer you valuable feedback and guidance. Seeking professional advice will help you make informed and sound decisions that protect your interests and goals.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?