Term Sheet Negotiation

---
name: term-sheet-negotiation
description: Use when a founder has or expects a term sheet and needs to negotiate. Triggers on "negotiate my term sheet", "is this term sheet fair", "liquidation preference", "board seats", "protective provisions", "how to negotiate valuation", "I have multiple offers", "what terms matter". Focuses leverage on the terms that change value and control.
---

# Term Sheet Negotiation

Founders over-negotiate valuation and under-negotiate the terms that quietly
decide who gets paid and who controls the company. A high valuation wrapped in
bad terms is worse than a fair valuation with clean ones. This skill puts the
leverage where it matters.

## When to use this skill

Use it the moment a term sheet is in hand or imminent, with the pipeline still
warm from [[investor-pipeline-crm]]. Understand each clause first with
[[term-sheet-explainer]]; model the ownership impact in [[cap-table-manager]].

## Leverage comes from the process, not the table

- The strongest lever is a real second option. A batched raise
  ([[investor-pipeline-crm]]) that produces competing interest does more than
  any clever counter.
- Leverage decays after you sign. The signed term sheet usually includes
  exclusivity (no-shop); once signed, your alternatives are gone, so negotiate
  hard *before* signing.
- Get a startup lawyer who sees these daily. The cost is trivial against the
  value of one fixed term.

## The terms that change VALUE

- **Liquidation preference**: 1x non-participating is standard and founder-fair.
  Resist participating preferred ("double dip") and multiples above 1x - they
  pay investors twice and can gut founder/employee proceeds in a modest exit.
- **Option pool**: a pool carved from pre-money is founder dilution disguised as
  a number. Size it to the real hiring plan ([[fundraise-team-hiring]]), not a
  default 15-20%.
- **Anti-dilution**: accept broad-based weighted-average; refuse full-ratchet,
  which punishes you brutally in a down round.
- **Pro-rata rights**: standard for lead investors; reasonable to grant.

## The terms that change CONTROL

- **Board composition**: at seed, keep founder control or a balanced
  founder/investor/independent structure. A board you lose by Series A is hard
  to win back.
- **Protective provisions**: investor veto rights over certain actions. Normal
  to grant some; keep the list narrow and tied to genuinely major decisions.
- **Founder vesting**: investors often re-set or extend it. Negotiate credit for
  time already served.

## How to negotiate

- Pick your three priorities; concede the rest gracefully. Fighting every line
  signals inexperience and sours the relationship you are about to depend on.
- Trade, don't just push: give on something they value (e.g. pro-rata) to win
  what you value (e.g. 1x non-participating).
- Anchor on standards. "Market standard at this stage is X" is your most
  powerful phrase, and it is usually true.
- Remember you will work with this partner for years. Negotiate firmly and
  cleanly; do not scorch the ground you have to stand on.

## Anti-patterns

- Maximizing valuation while waving through participating preferred or a
  founder-funded pool.
- Signing a no-shop before you have negotiated, killing your own leverage.
- Negotiating without a lawyer or a comparable benchmark.
- Treating it as a war instead of the start of a long relationship.

## Deliverable

A marked-up term sheet: each material term flagged standard / negotiate / walk,
your top-three priorities, the trades you will offer, the ownership-and-control
impact modeled, and the script for countering the two or three worst terms.