Sample Report — Full Example
Series A Term Sheet — Acquisition of 18% Equity
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Recommendation
Negotiate before signing
The combination of 2x participating preferred and full-ratchet anti-dilution is aggressive relative to standard Series A terms. Confidence: 62% (Medium) — sufficient information to recommend renegotiation, not enough to model exact founder outcomes without a valuation figure.
Known Facts
18% equity stake offered as part of a Series A round.
Liquidation preference: 2x, participating.
Anti-dilution provision: full ratchet.
Board composition: investor gains one additional seat post-close.
Founder vesting: 4-year schedule, 1-year cliff (industry standard).
Key Risks — All 22 Findings
Liquidation preference structure
2x participating preferred means investors recoup 2x capital before common holders participate.
Anti-dilution provision
Full ratchet clause on down round can severely dilute founders in a future raise.
Board composition change
Investor gains a second board seat, shifting control dynamics post-close.
Missing valuation figure
Post-money valuation not stated — cannot assess if 18% is fairly priced.
Missing burn rate / runway
Without this, the urgency and leverage in negotiation cannot be assessed.
Participating preferred compounds with liquidation stacking
In a future round, additional preferred layers could further erode common equity.
Founder vesting schedule
4-year, 1-year cliff — matches industry standard, low risk.
Investor identity and track record unknown
Reputation and governance style materially affect long-term outcomes.
No information on pro-rata rights
Unclear whether investor has rights to maintain ownership % in future rounds.
No information on protective provisions
Veto rights over key decisions (hiring, sale, new debt) not specified.
Exit scenario not modeled
Without a target exit value, the real cost of the 2x preference is unclear.
No mention of option pool refresh
A pool refresh at this stage often dilutes existing holders, including founders.
No mention of drag-along rights
Could bind founders to a future sale decision they don't support.
No mention of information rights
Standard but worth confirming reporting obligations to the investor.
Single investor concentration
No mention of syndicate — one investor holding significant leverage alone.
No stated use of funds
Unclear if capital raised matches the company's actual operating needs.
Founder market allocation below typical range
18% may be low for a Series A if this isn't the first outside round.
No mention of secondary sale allowance
Affects founder liquidity options before an eventual exit.
No competing term sheets mentioned
Without a comparison point, it's hard to assess if terms are negotiable.
No legal counsel confirmed
No mention of independent legal review before signing.
Timeline pressure not stated
Unclear if there's a deadline forcing a faster decision than ideal.
No mention of co-sale rights
Affects founders' ability to sell shares alongside investors in future transactions.
Scenario Map
Best case: Strong growth, exit at 5-10x valuation. Participating preferred still caps some upside, but absolute founder returns remain meaningful.
Base case: Moderate growth, exit at 2-3x current valuation. Liquidation preference materially reduces founder proceeds relative to a standard (non-participating) structure.
Worst case: Down round triggers full-ratchet anti-dilution. Founder ownership drops sharply, potentially below what founders consider fair for continued commitment.
Action Plan
1. Request the post-money valuation and full cap table before proceeding.
2. Push to convert participating preferred to standard (non-participating) preferred, or negotiate a cap on the participation.
3. Negotiate full-ratchet down to a weighted-average anti-dilution provision — market standard and less punitive.
4. Engage independent legal counsel before signing, specifically to review board and protective provisions.
5. Request 2-3 reference calls with founders from the investor's existing portfolio.
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