Do More Faster India, 2nd Edition

Chapter 67Get Help with Your Term Sheet

Jason Mendelson

Jason is a cofounder of Foundry Group and has over 20 years of experience in the venture capital and technology industries in a multitude of investing, founding, operational, and engineering roles. He was a cofounder of SRS Acquiom, a managing director and general counsel for Mobius Venture Capital, an attorney with Cooley LLP, and a software engineer at Accenture. Jason has been a Techstars mentors since 2007.

The good news is that you received a term sheet from an investor wanting to give you much-needed financing. The bad news is that now you have to try to understand what all this legal jargon means and how to negotiate for the best possible deal. So how do you do that?

First, realize that you’ll never be as good at negotiating a term sheet as an investor who regularly invests in startups. You’ll also never be as good as his lawyer.¹ So, as a first step, make sure that you have good legal counsel.

But that doesn’t mean that you should just send your lawyer the term sheet and say, “Finish it.” There are too many important issues to deal with and you need to have a working knowledge of what the terms mean, which terms matter, and what some of the trade-offs are that your business will make should you accept certain provisions.

In general, there are only two things that investors really care about when making investments: economics and control. Economics refers to the end-of-the-day financial return the investor will ...