A founder-hostile lead-investor draft: full ratchet, a pre-money pool and a participating 2x preference.
Read the source document
SUMMARY OF PROPOSED TERMS — SERIES A PREFERRED (SAMPLE, FICTIONAL)
Issuer: Lumen Robotics, Inc. Lead investor: Harbor Ridge Capital. Amount: $8,000,000.
Valuation: $24,000,000 pre-money valuation on a fully-diluted basis.
Option pool: The Company will reserve a 20% option pool created pre-money, so that the pool is included in the pre-money capitalization.
Liquidation preference: The Series A will carry a 2x liquidation preference, participating, with no cap on participation.
Anti-dilution: In the event of a subsequent financing at a lower price, the Series A conversion price will be reduced on a full ratchet basis.
Founder vesting: All founder shares will be subject to a fresh four-year vesting schedule with a one-year cliff, commencing on the closing date.
Board: The board will have five seats. The investors will designate a majority of the board.
No-shop: The Company will negotiate exclusively with the investors for a period of 75 days.
Dividends: The Series A will carry 8% cumulative dividends, payable on a liquidation or redemption.
Redemption: At any time after the fifth anniversary of closing, holders of a majority of the Series A may require the Company to redeem their shares.
This term sheet is non-binding except for the no-shop and confidentiality provisions.
Do not sign as-is
Read as: Venture term sheet
Full-ratchet anti-dilution is the sharpest issue — a full ratchet re-prices the entire prior round to the new lower price, so even a small down round can wipe out founder ownership.
1 deal-breaker7 major1 minor2 missing
15 clauses read · rulebook v1.0 · written from the founder's side · see every rule
What this is, and isn't. The instant check recognises common clause patterns and judges the numbers in them against market norms. It doesn't understand every wording — an unusual clause can slip past it, so a clean result is not a clean bill of health. It isn't legal advice; use it to know what to question and what to ask for.
Clauses to negotiate
Deal-breaker
Full-ratchet anti-dilution
full ratchet
From your document: Anti-dilution: In the event of a subsequent financing at a lower price, the Series A conversion price will be reduced on a full ratchet basis.
Why it matters
A full ratchet re-prices the entire prior round to the new lower price, so even a small down round can wipe out founder ownership.
What's normal
Broad-based weighted-average anti-dilution is the market standard; full ratchet is rare outside distressed rounds.
Ask for
Replace with broad-based weighted-average anti-dilution.
Major
Option pool
20% pre-money
From your document: Option pool: The Company will reserve a 20% option pool created pre-money, so that the pool is included in the pre-money capitalization.
Why it matters
A pre-money pool is carved out of the founders' share before the investment, so it dilutes founders alone; a post-money pool shares the dilution with the new investor.
What's normal
Pools are commonly 10–15% of the post-money cap table, sized to a 12–24 month hiring plan; pre-money inflates the effective valuation cut.
Ask for
Size the pool to the hiring plan, measure it post-money, or credit the pool against the pre-money valuation.
Major
Liquidation preference multiple
2x
From your document: Liquidation preference: The Series A will carry a 2x liquidation preference, participating, with no cap on participation.
Why it matters
A 2x preference means investors take 2× their money back before common holders see a dollar.
What's normal
1x non-participating is the market standard; anything above 1x is off-market outside distressed rounds.
Ask for
Reduce to 1x non-participating.
Major
Participation rights
participating, uncapped
From your document: Liquidation preference: The Series A will carry a 2x liquidation preference, participating, with no cap on participation.
Why it matters
A participating preferred is paid its preference and then also shares in the remainder — a 'double dip' that shrinks common proceeds.
What's normal
Non-participating is the market standard; if participation is conceded it is normally capped at 2–3x total return.
Ask for
Make the preferred non-participating, or cap total participation at 2–3x.
Major
Founder re-vesting
fresh vesting from closing
From your document: Founder vesting: All founder shares will be subject to a fresh four-year vesting schedule with a one-year cliff, commencing on the closing date.
Why it matters
Re-vesting already-earned founder equity from zero hands the investor leverage over you and undoes the time you've already put in.
What's normal
Founders are commonly credited for time served, with 25–50% of unvested shares vesting on a change of control.
Ask for
Credit time already served; cliff waived; double-trigger acceleration on a change of control.
Major
Investor board control
investor-controlled
From your document: The investors will designate a majority of the board.
Why it matters
If investors hold a board majority they can hire and fire management and control sale decisions from day one.
What's normal
Early-stage boards are typically balanced (founders / investor / independent) rather than investor-controlled.
Ask for
Founder-balanced board with one mutually agreed independent director.
Major
No-shop / exclusivity
75 days
From your document: No-shop: The Company will negotiate exclusively with the investors for a period of 75 days.
Why it matters
A no-shop bars you from talking to other investors while they diligence — a long one leaves you with no BATNA if terms shift late.
What's normal
30–45 days is typical; beyond 60 days is off-market for a seed/Series A.
Ask for
Cut to 30 days, with automatic release if the investor re-trades terms.
Major
Redemption rights
redemption
From your document: Dividends: The Series A will carry 8% cumulative dividends, payable on a liquidation or redemption.
Why it matters
Redemption lets investors force the company to buy back their shares on a schedule — a cash call a startup rarely survives.
What's normal
Redemption rights are uncommon in venture term sheets.
Ask for
Delete the redemption right.
Minor
Cumulative dividends
8% cumulative
From your document: Dividends: The Series A will carry 8% cumulative dividends, payable on a liquidation or redemption.
Why it matters
Cumulative dividends grow the investor's preference every year the company stays private.
What's normal
Non-cumulative dividends, payable only if declared, are the standard.
Ask for
Make dividends non-cumulative, payable only when declared.
What's missing
Protections a reasonable version of this document usually has — and this one doesn't mention.
Major
Vesting acceleration
Vesting with no acceleration means an acquisition can strip unvested founder equity.
Ask for Add double-trigger acceleration on a change of control.
Minor
Pro-rata / participation rights
Without pro-rata rights, you and existing small holders can't keep your percentage in later rounds.
Ask for Grant pro-rata rights to existing investors and major holders.
How the score works
Every problem adds penalty points — a deal-breaker 20, a major issue 10, a minor one 4, a missing standard protection 6 or 2 — and favourable terms offset up to 8. The score halves for every 45 net points, so a very bad document still scores above a merely bad one. Bands: 85+ broadly reasonable, 65–84 negotiate a few terms, 40–64 push back hard, under 40 do not sign as-is. The score is a fast triage number — the findings are the point.
Now turn it into a plan.
The check tells you what to question. The full workspace simulates the other side's pushback, prices your walk-away, drafts your reply, and checks it for risk — with a human gate before anything is sent.