The Art of Startup Fundraising

12Term Sheets and Terms

This is where the rubber meets the road on the path to getting funded. You've put in the work to prepare your startup to be fundable, you've gained intelligence on the process and who you want to invest, you've polished and flexed your pitch, and you've gained some investor interest. Now it's time to nail down the terms.

Term sheets can be really scary for new startup founders. More than anything, it's the fear of the unknown, or of making a mistake that founders may regret later, as the business grows. Term sheets are important, and can be complex, but they don't necessarily have to be. The key is knowing what to expect, knowing what you want out of a term sheet, knowing what you won't bend to, and of course having good representation to review all of the fine print.

So what is in a term sheet? What don't you want to see in your term sheets? What strategies may help founders get more of what they want?

Term Sheets 101

The term sheet is the document that lays out the terms of the investment and collateral. It details what you as the startup are giving, and what you are getting in return. Then it lays out the guidelines of how both parties will act to protect the investment.

Term sheets can vary depending on what type of funding round you are in, and how much is at stake, as well as who is involved. Generally term sheets for seed rounds are going to be much lighter and shorter than for series A or beyond. The less at stake, the less complex it should ...