Dear SaaStr: What’s The #1 Thing An Entrepreneur Should Look Out For In a VC Term Sheet?
One simple thing: complexity.
99% of terms and term sheet should be simple and straightforward:
- the amount invested (and % ownership for investors / cap table)
- pool for stock options and employees
- board construction and seats that are proportionate, roughly, to ownership
- standard venture terms — pro rata, IPO registration rights, etc.
- timing (if/when term sheet expires)
That should be all there is, 90% of the time. That’s enough. Professional, experienced start-up investors shouldn’t care about too much more than this.
Of course, get a start-up lawyer that has done this 100 times. They know.
But mainly, be on the lookout for anything … too complicated. Because the above 5–6 points should be all that matter. And they are pretty straightforward.
Folks that make problems for you are often the ones that make the most complicated term sheets. With endless tranches, complex terms, complex hurdles, lengthy timelines, excessive due diligence, etc.
And importantly, complex term sheets are the ones least likely to close.