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Are you curious about what this course will be like? Sign up for a free webinar on Y Combinator's Simple Agreement for Future Equity (SAFE). According to Carta, 89% of pre-seed and 50% of seed rounds in Q4-23 utilized SAFEs. While the SAFE is famous for its speed and simplicity, it also presents unexpected complexities. There are three variants: <ol><li>Valuation Cap, No Discount</li><li>Discount, No Valuation Cap</li><li>Most Favored Nation (MFN), No Valuation Cap, No Discount</li></ol> When negotiating a preferred equity term sheet, it's critical to understand how the SAFE works.

Free Webinar: Learn the Y Combinator SAFE

Pre-money? Post-money? Fully diluted capitalization? Option pools, convertibles, and the "valuation shuffle"... What do they all mean? Valuing a startup is anything but straightforward. This free webinar will teach you how the order of events that happen alongside an investment (refreshes to the option pool and the conversion of SAFEs and notes) affects the valuation. Whether you're a founder, VC, or aspire to be either, a firm grasp of the "valuation shuffle" will help you protect your interests and strike a better deal when negotiating a term sheet.

Free webinar: the VC term sheet "valuation shuffle"

Startup founders building new businesses, from MVP to scale.

Angel investors, LPs, and VCs evaluating and managing investments.

Raising capital from investors — pitch decks, term sheets, investor relations, and fundraising strategy.

Master VC term sheets with The Academy – the go-to school for those perfecting the craft of venture capital.

Morgan Polotan

The Definitive Guide to VC Term Sheets

Senior Analyst 

Advisor, Entrepreneur, Investor, Lecturer

Recent MBA Graduate

***UPDATE: To keep the quality of conversation and interaction high, I'm limiting each cohort to 5 students. Once a cohort reaches capacity, I'll open a new one for you to enroll in. **** In the venture capital world, term sheets are more than just documents—they are the foundation of your investment strategy and returns. Whether you’re a new VC looking to sharpen your skills or a seasoned investor aiming to stay ahead, this course will provide the insights and tools to navigate term sheets confidently and precisely. Designed specifically for current and aspiring venture capitalists, this course offers a deep dive into the key elements that drive successful investments. You'll learn to decode term sheets and understand critical terms like valuation, liquidation preferences, anti-dilution provisions, and more—all through the lens of maximizing investor value. We’ll cover the nuances that can make or break a deal, from structuring terms to mitigate risks to leveraging your negotiation position to secure favorable outcomes. By the end of this course, you will:- Master the essential components of a venture capital term sheet and understand how each term impacts your investment’s potential.- Develop advanced negotiation tactics to protect your interests while aligning with founders for mutual success.- Anticipate and address potential pitfalls, enhancing your ability to structure deals that drive returns. This course is tailored for investors looking to deepen their understanding of term sheets and refine their deal-making prowess. Whether managing your first deal or expanding your portfolio, you’ll be equipped with actionable strategies, expert insights, and the confidence to craft winning term sheets. Elevate your venture capital skills—understand, negotiate, and invest with excellence.

Mastering VC Term Sheets: A Course for Aspiring and Seasoned Investors

Course syllabus

Each lesson contains a pre-recorded video to introduce each section of the National Venture Capital Association (NVCA) model term sheet.

🎥 Pre-recorded videos

Every Sunday at 1p EST your instructor will lead a live 90-min full cohort workshop with plenty of hands-on exercises to help you clarify concepts you don't fully understand and ask questions specific to your situation.

📅 Live sessions

Each lesson in this course maps to a section of the NVCA model term sheet

VCs investing in startups who need to negotiate term sheets and want to ensure their investments are aligned with their return targets.

Aspiring VCs who want to break into the industry, crush their interviews, and land their first job at a VC firm.

Founders raising (and preparing to raise) venture capital who will need to negotiate term sheets and want to protect their interests.

Who this course is for

What you'll learn in this course

Economics in VC term sheets defines financial terms like valuation, liquidation preferences, and anti-dilution, determining payout and ownership. Control covers decision-making rights, board composition, and voting power. Balancing both ensures fair, strategic partnership.

The key concepts: economics and control

Pre-money valuation is the value of a startup before new investment, while post-money valuation is the value after investment, including the new capital. The difference impacts ownership percentages and how much equity an investor receives for their investment.

Pre-money vs. post-money valuation

The fully diluted post-money capitalization includes all outstanding shares plus options and convertible securities. It affects valuation by reflecting the total potential dilution and giving a clearer picture of ownership stakes after new investment.

Fully diluted post-money capitalization

The option pool shuffle refers to allocating a portion of shares for future hires, usually from the founder’s equity before calculating the investor’s ownership. This can dilute the founder’s stake, so understanding its size and timing is key to fair negotiation.

The option pool shuffle

Outstanding SAFEs, convertible notes, and warrants can impact valuation by adding potential future shares to the total equity. They dilute current ownership and decrease the effective valuation.

SAFEs, convertible notes, and warrants

Preferred stock types include non-participating (gets its payout or its share of the proceeds), participating (gets its payout plus a share of remaining proceeds), and participating with a cap (gets its payout plus a share of remaining proceeds up to a certain amount).

The three types of preferred stock

Liquidation preference determines the order and amount investors are paid in an exit event. It ensures preferred shareholders are paid first, up to a specified amount, before common shareholders see any returns. This can protect investor interests but may impact founder proceeds.

How liquidation preference works

Voting rights are crucial for founders as they determine who has a say in key business decisions, such as fundraising, strategic changes, and exits. Ensuring balanced voting rights helps maintain founder control and aligns decision-making with the company's vision and goals.

Voting rights

Protective provisions give VCs the right to veto significant decisions, such as company sales or new share issuance. Understanding these provisions helps investors safeguard their interests while ensuring alignment with the founders' long-term vision.

Protective provisions

Anti-dilution provisions shield VCs from losing value in down rounds by adjusting their equity. Understanding these terms helps investors protect their stake while fostering a fair equity distribution, maintaining alignment with founders across all funding stages.

Anti-dilution protection

Pay-to-play provisions require VCs to invest in future rounds to maintain their rights and avoid dilution. Understanding these terms helps investors protect their position while aligning commitment levels and ensuring ongoing support for the portfolio company's growth.

Pay-to-play

Redemption rights let VCs require a company to repurchase shares after a set period. Understanding these rights helps investors manage exit timelines and liquidity, while balancing the need for the company's financial stability and growth potential.

Redemption rights

Registration rights allow VCs to require a company to register their shares for public sale. Understanding these rights helps investors plan exit strategies while considering the company’s readiness and the potential impact on its market debut.

Registration rights

Information rights give VCs access to company financials and updates. Understanding these rights helps investors ensure transparency and trust while respecting the company’s need to safeguard sensitive information and maintain operational integrity.

Information rights

Pro rata rights enable VCs to maintain their ownership stake in future rounds. Understanding these rights helps investors protect their equity position while supporting the company's growth and ensuring a balanced ownership distribution over time.

Pro rata rights

Vesting schedules define how founders and employees earn their equity over time. For VCs, understanding these schedules is key to ensuring aligned incentives, retaining key talent, and protecting the company from premature equity loss due to early departures.

Vesting schedules

Rights of first refusal (ROFR) and co-sale rights let VCs buy shares before they’re sold to outsiders. For investors, understanding these rights is essential to manage equity sales, control cap table dynamics, and prevent unwanted dilution while maintaining strategic influence.

Rights of first refusal (ROFR)/co-sale rights

Founder-controlled boards preserve the founder’s vision, investor-controlled boards focus on investor interests, and balanced boards offer a middle ground. Understanding these dynamics ensures effective governance and alignment of incentives.

Board structures: founder-controlled, investor-controlled, and balanced

Drag-along rights enable majority shareholders to compel minority shareholders to join in a company sale. Understanding these rights helps VCs ensure smooth exits by preventing minority holdouts from blocking deals and securing full stakeholder support.

Learn directly from The Academy

The Academy

Courses

The Definitive Guide to VC Term Sheets

Resources

Free webinar: the VC term sheet "valuation shuffle"

Free Webinar: Learn the Y Combinator SAFE