5 Raises, 5 Takeaways

Happy New Year! We’re excited to be back with Term Sheet Pitfalls Season 4️⃣ 

A few highlights from our holiday breaks 👇️ 

Before we jump into today’s content, a quick shoutout to my friend Max Brenner. I’ve known Max for years and the hustle he has put in to building With Coverage is next to none. Today, they announced a $42M Series B co-led by Sequoia and Khosla. I love when good people win!

With Coverage is an incredible AI-centric risk management software platform that compares all of your company’s liability/insurance policies to thousands of data points related to comparable policies, identifiyng and unlocking savings opportunities. Several Habitat Partners portfolio companies and clients of Chuck’s are using With Coverage (it’s a no brainer as WC offers a free, up-front AI audit of your policies). More to come on With Coverage in the future.

Current Market Conditions

Over the past few months, I’ve had a front row seat as an advisor to 5️⃣ companies that successfully fundraised for sizable rounds (very fortunate outcome in current market conditions). Interestingly each company was in a different category – a few were north of $20M in revenue while others were in the earliest innings (even pre-launch). While I often leverage historical success cases as a construct for the advice that I provide to founders, the market is quite dynamic, constantly changing for better or worse… and the current market is very bifurcated:

• Companies raising that “surpass the bar” with exceptional founders, world class unit economics, robust growth, and brand/product differentiation are opening the floodgates driving competition amongst investors. These companies “have the sauce.” Rounds for this class of company are coming in bigger than previous vintages (especially on the AI side but really across all vertcials). While deal count has steadily dropped from 2023 to 2025, deal value has grown (see graphic below) = bigger avg round sizes.

• On the other side of the bar, there is minimal forgiveness. Many investors have moved up market and are highly cautious and selective, anchored on the profile of recent breakout assets. The result of a deal environment that is higher quality, but lower velocity (especially in CPG) is material cash challenges if you’re on the wrong side of the split. This also leads to a less competitive dynamic amongst emerging brands because the few that get funded become extremely well-funded while others are left behind (“the rich get richer”).

As my partner Blake states on the pre-seed/seed stage environment, “the middle has fallen out with regard to funding. I think there’s available capital for pre-launch companies that are telling an amazing story, and have a distribution advantage or a moat around their product. The seed-to-series A investor has gone more upmarket these days. The amount that a company needs to prove from their launch and that first initial bit of capital that they get is tremendous compared to what was happening in the past.”

The future: I think this is shaping up to be THE year of extreme exuberance… especially in technology. The tech backdrop looks eerily similar to 2021 sans the ZIRP interest rates, which were a fundamental macro driver of capital inflow and valuation heights at the time… replace 1-2% interest rates with a categorical shift towards AI obsession (obviously). If we continue to see GDP growth north of 3.5% (was over 4.3% in Q3), rate cuts (I’d anticipate we get to 3ish range), a roaring public markets AI trade, controlled inflation, and continued AI-related IPO filings, I wouldn’t be surprised to see deployment levels in VC reach approach 2021 levels. With that said, it’s largely dependent on how many megarounds come to fruition from AI giants (i.e., Anthropic and aAI/Grok’s recent rounds).

Witnessing ~5 very different fundraising journeys simultaneously (our companies tend to be more spread out) forced me to reflect and refresh my own views on what it takes to maximize the likelihood of success in today’s ever-changing capital environment. I finally had a moment to gather my thoughts and am sharing below in hopes that even one of these principles better positions a founder for future success.

(1) Run a tight process with diverse outreach cohorts 

Conventional wisdom would say the more shots you have on goal, the more likely you are to score. In many cases, I think this is faulty fundraising advice as it both wastes the time of the founder and maximizes the likelihood that investors end up gossiping (which can end up being destructive – I’ll explain).

Often, insiders and founders come together to build a long list of prospective investor introductions to kick off a process. That’s fine in practice and there’s nothing wrong with a long list with lots of potential shots but the cadence and composition of the different intros matter.

Don’t come out of the gates looking to (unless you are sure you have tremendous financial momentum):

• Chat with the 3-5 most active institutional investors for your category.

  Why: better to come this profile of investor with existing commitments and pitch repetitions under your belt (unless you have rocket ship financial momentum and/or are a track-record, exited founder)

• Meet with institutions that consistently co-invest together

  Why: you increase the likelihood that these funds will trade notes and if one finding from firm A is negative, it could influence firm Bs decision to pass… firm B might have never come across that negative funding if the founder went to firm B out of the gates and ignored firm A. Your goal is for each investor to reach their own conclusion with as little outside influence as possible. More on this trap in #2.

The notion that every investor is trying to build their own completely independent conviction 100% of the time is utter bullshit. Of course, we are all trying to build our own thesis initially for an opportunity…but external thesis validation or rejection from peers that we respect can be impactful. Sometimes impactful enough to change a decision positively or negatively.

Do come out of the gates looking to:

• Reach out to diverse cohorts one at a time. What does this look like? It looks like pods of 3-5 investors with varying profiles:

  • Investor #1: family office that has dabbled in your category

  • Investor #2: CVC in your category

  • Investor #3: relevant institution with history in your category

  • Investor #4: institution outside of the USA that is eager to get more exposure to your business profile

  • Investor #5: institution with no background in your category but open to considering

Spend material time with one pod before starting to outreach to the next. Hopefully you are getting a new commitment every few pods (and maybe even multiple in one pod if things are going really well).

It’s unlikely that members of a pod like that of the above will trade notes and you will also potentially get a wide array of valuable feedback. As momentum builds commitment-wise these pods may start to look more homogeneous, filled with on-target institutional investors who will feel more urgency in the face of momentum.

(2) Generally, don’t ask investors who pass on you for intros to other investors

See full thoughts ➡️ here

To be blunt, investors don’t love getting the perceived trash (passes) of other investors. Unless you are positive the reason an investor passed on your business won’t drive negative bias in the minds of the investors they introduce you to…. it’s best to not ask investors for other investor intros. As a founder, you want to avoid “pass rationale” tainting new processes… as an investor, if I get an intro from an investor who passed, I’ll ask why and I’ll potentially bring that negative bias to our first chat.

An example in which it might still make sense: I’m building in climate and an investor who has never invested in climate in their life passes for that exact reason… but the investor that passes knows an incredible climate investor. In that case, opting in might make sense. The same goes if an investor passes truly because you are too early for them but offers to intro earlier stage investors.

For intros a helpful existing investor, a super connected service provider, or an angel comes in handy. For several of the portcos that just raised my partner and I ran the entire outreach process – although sometimes it can be even more powerful if the intro comes from an unbiased source instead of your existing investor who is obviously biased.

(3) Momentum raises > Need Raises

“The best time to raise is when you don’t need it.” Traditionally, fundraising involved starting chats with investors around a certain runway threshold (say 9-12 months OR 6 if you were feeling very confident). You certainly don’t want to be constantly raising but if you can time raises on the back of exciting business milestones as opposed to cash position, it will be easier to close capital and fundraising will feel less formal and stressful.

The nightmare scenario for any investor is having to explain to their LPs how a company they backed spuddered just months later. I’ve also seen a handful of companies die via the following sequence of events: go into raise without much runway (<6 mos) ➡️ sign term sheet with investor after a few months (yay) ➡️ investor backs out last minute.

Coming to VCs with a healthy cash position in place assuages a VCs fear and possibility of the previously described sequence of events. So if you can… raise on momentum, not runway needs.

The truth is… it usually ends up being both because milestones commonly require more cash.

(4) Balancing Urgency vs. Overcommunication

Founders are the busiest but investors are also busy. Balancing competing deal opportunities within a fund (especially smaller funds) is a major juggling act. Investors should be cognizant of the amount of time they take away from a founder for a fundraise… but mutual empathy requires founders to also respect the time it takes for an investor to truly form a strong POV on their business. At the end of the day it’s all about integrity and honesty.

The best way to drive urgency is to respectfully and clearly (NOT VAGUELY) communicate objective momentum. Instead of FOMO bating, it’s about providing honest updates on your process when the time is right that drives scarcity bias in a real way.

❌ We’re moving quickly with a ton of momentum

❌ We’ve had a lot of interest and will likely close in the next 48 hours (YC in a nutshell)

❌ Allocation will be super tight so we’re advising funds to accelerate their process

❌ We’re basically oversubscribed but wanted to chat in case there was a strategic fit

None of these clauses provide objective visibility into your process. Does a “ton of momentum” equate to material closed capital or a handful of first calls that didn’t end in “no” officially. Investors are so used to hearing this type of language, they default to assuming exaggeration and dishonesty.

✅ We’ve had 50% of the round verbally committed by firm x with several angels including y and z investing $50k each. We have $500k left and would love to have you involved but no pressure.

✅ We signed a term sheet with firm x last week. We’ve had chats with 7 funds this week including yours. We really value your experience with x and think you’d be a particularly valuable investor to have.

✅ Respectfully, we didn’t think the process would move this quickly, but we have 90% of the round comittted from x and y. We’re excited at the prospect of partnering so if there’s any chance you’re interested, we’d be happy to explore the final 10% of allocation or consider extending the round.

Lastly, there’s nothing wrong with checking in with investors as a process progresses but checking in too often (weekly) with minimal process updates in between check-ins can appear desperate.

(5) Valuation is NOT your primary objective

If you have twenty term sheets… by all means, be tough on valuation if you want to be. For everyone else, bringing in cash to increase the likelihood by x% that your company makes it to a liquidity event is more important than sweating over a few extra points of dilution.

Exited founders who tell stories about “wishing they’d taken less dilution along the way” are still in the 1% of founders that made it to exit (that’s a very fortunate position to be in). I’ve seen founders blow up deals through an attempt to decrease dilution by a few percentage points and it’s not worth it. Exiting for $200M cash with 10% ownership is much better than going under or conducting an all stock sale with 20% ownership. Bringing in cash is KING.

Optimize for quality partners (if you can) that you’re excited to work with… and if you have the luxury to push valuation up with multiple offers on the table, good for you (optionality = power). I’ve had conversations in both directions lately but at the end of they day I will advise our founders to prioritize the partner over a few million dollars more in valuation all day long… other elements of the term sheet matter A LOT though as we’ve discussed in prior posts (liquidation preferences, board composition, etc).

(6) Other Quick Sounds Bites

• Close an angel = ask to meet their angel friends

• Never exaggerate traction

• #s tie across all asepcts of data room

• Share your weakness and explain your plan to overcome it

• Demonstrate customer obsession

• Raise 1.5x the cash than you think you need

If you enjoyed this article, feel free to view recent prior articles:

• Guide to Secondaries

• Standing Out Pre-Traction

• The State of VC

• Corporate Governance 101: Part 2

• Corporate Governance 101: Part 1

Ongoing Term Glossary

Anti-Dilution Rights: offer investors protection against dilution in unfavorable financing rounds. This term is usually not contentious from a negotiation perspective between founder and investor - in fact, studies have founds that 92-95% of preferred stock financings include some form of anti-dilution protection.

Authorized shares: the MAX number of shares of each class a company can issue without further shareholder approval.

Automatic Conversion: in the context of convertible notes (or SAFEs), a clause that triggers a convertible note to automatically convert into equity at maturity.

Board of directors: a group of individuals that represent sharesholders in major corporate decisions. A critical responsibility is the oversight of management - simply, the ability to fire of hire the CEO. Other board activities include assesing company performance, providing strategic guidance, developing corporate policy, approving budgets, options plans, mergers/IPOs, and fundraising.

Bridge Financing: when investors agree to provide temporary financing to secure a company’s cash balance before the company raises their next priced round - aka the bridge that gets you to your next priced round.

Capped Price: conversion price per share awarded to noteholder (or SAFE holder) if investor exercises valuation cap

Change in control: a significant shift in the ownership or control of a company, often triggering specific rights or obligations for investors (M&A most commonly)

Clawback provisions: provisions that give the company the right to buy back vested shares at the original issue price or at fair market value after dismissing an employee under defined circumstances (leaving for a competitor, severe misconduct, etc)

Co-Invest: triggered when a fund raises “one-off” new capital from LPs/investors (as opposed to pulling from existing permanent fund) to unlock ability to execute an investment; associated management fees and carry (if any) typically flow back to the fund or individual who raised the co-invest capital. Funds often give major LPs prioritized “co-invest“ rights, which gives such LPs the first rights to participate in the co-invest opportunity before others.

Comparable Company Analysis: a valuation methodology that entails identifying comparable companies and transactions to the company being valued as a means of deriving multiples that can be used to generate a landed valuation

Confidentiality: prevents the startup from disclosing the terms of a term sheet to outside parties (i.e., other investors, startups). This enables both parties to negotiate in good faith.

Convertible Note: a debt instrument that can be converted to equity based on the occurrence of certain events (most commonly during a priced equity financing round).

Conversion: convertible notes (and SAFEs) automatically convert into equity if certain triggers occur. The most common trigger that leads to the conversion of a convertible note (or SAFE) into equity is a priced equity financing round

Corporate governance: a set of principles and mechanisms that balances the interests of company stakeholders (not only shareholders but also employees, customers, suppliers, etc) and affects control over company decision-making

Co-Sale: the inverse of ROFR by nature; if a founder sells shares, the investors will have the opportunity to sell a proportional amount of their stock as well.

Debt repayment terms: in the context of convertible notes, defines specifics associated with principal, interest rate, maturity date, and default provisions.

Definitive documents:  the legal contracts between the investors and the company that detail the terms of the transaction and are drafted by a lawyer

Dilution (D): losing a portion of your ownership as the company sells equity to investors

Discounted Cash Flow Analysis (DCF): a valuation methodology that entails forecasting the future cash flows of a business and discounting the cash flows by a determined cost of capital to derive an enterprise value

Discount: a discount is a term awarded to the convertible noteholder (or SAFE holder) that drives a reduction in the conversion price per share that they are awarded during a qualified financing. Discounts typically range from 10-30% with 20% being the most common.

Down Round: when the pre-money valuation of a future financing is lower than the post-money valuation of the prior financing; often seen as a negative sign for the company

Double-trigger: requires two events to occur to accelerate the completion of your vesting. The first trigger is the acquisition, and the second trigger is the founder or employee getting terminated by the acquirer without cause or good reason in a specified period (typically one year)

Drag-Along Rights: in short, drag along rights enable majority shareholders often including VCs to force minority shareholders to participate in the sale of a company on the same terms. Minority shareholders are “dragged along” disabling them from holding out on a deal to try to get something better for themselves.

Employee Option Pool (EOP): stock that is reserved for existing and future employees to compensate, retain, and motivate workforce

Equity conversion terms: in the context of convertible notes, defines the specific event(s) that triggers conversion of debt to equity, the formula used during conversion (considering the impact of the valuation cap and/or discount – to be discussed), the type of equity received upon conversion by the note holder (common vs. preferred equity), and any associated rights the new equity holders will get after their convertible note is converted to equity (voting, dividends, etc).

Exclusivity: often referred to as a “no shop,” this provision locks parties into negotiating only with each other for a defined period (i.e., 30-60 days)

Exercise (options): buy options at the strike price

Full Ratchet Anti-Dilution Protection: adjusts the conversion price of the protected securities downward all the way the price of the shares issued in the new round. Full-Ratchet is the most investor friendly.

Fund Model: a forecasting exercise that a VC conducts to project what a successful fund will look like in terms of returns from each investment. VCs typically build a pathway to 3.0x net DPI

Indifference point: the price per share at which the noteholder or SAFE holder is indifferent between exercising the discount or valuation cap

Interest Rate & Payments: convertible notes often feature interest rates. Unlike a traditional loan, startups rarely pay the interest in cash to the convertible noteholder periodically. Instead, convertible notes accrue interest until the time of conversion.

Issued Shares: those that the company has issues to shareholders; can’t be greater than the number of shares authorized to be issued for that class

Lead Investor: primary investor(s) (co-leads can exist) in a funding round that set terms and typically are writing the largest check(s); often take a board seat

Legally nonbinding: refers to the nature of term sheets. A signed term sheet does not legally mandate a deal be completed

Liquidation Preference: is one of the rights that makes preferred stock more valuable than common stock and a large part of why investors agree to purchase the right to preferred stock (i.e., SAFEs or convertible notes) or purchase preferred stock directly during financings. Liquidation preference is the legal entitlement to receive a pre-determined portion of a company’s value in the event of a sale or liquidity event before the holders of common stock (i.e. the right to get paid first in an exit).

Major Investor: refers to a participating investor in a financing that surpasses a certain check size threshold, unlocking certain rights. I.e., “all those who invest over $500k will be deemed major investors and shall receive information and pro rata rights”

Maturity: the date at which the debt (plus any accrued interest) is due for repayment. This is typically 12, 18, or 24 months from the issuance of the convertible note. We will talk about conversion momentarily but the norm for a convertible note is that it has converted into equity prior to the maturity date

Maturity Extension: in the context of convertible notes, this entails moving the maturity date back. A common alternative to repayment is for the company and noteholders to agree to an extension on the maturity date of the note

Multiple: a ratio that is calculated by dividing the valuation of an asset by a specific item on the financial statements

Multiplier (Liquidation Preferences): Multiplier refers to the multiple on the original price per share of a class or series of preferred stock an investor is entitled to receive before others get paid. A 1x preference means getting paid one times the original investment, a 3x preference would mean getting paid three times the original investment back before the next most senior preference is paid.

Multiple on Invested Capital (MOIC): compares the value of an investment on the exit date to the initial equity contribution

Non-priced financing: financing round in which founder and VC do not explicitly set a share price and thus do not set an associated pre-money valuation (i.e., convertible notes, SAFEs)

Option pool: an amount of common stock primarily reserved in the cap table for future employees (in certain cases, options can be pulled out of the option pool for existing employees/founders as well)

Optional conversion: in the context of convertible notes, entitles the noteholder to convert their note into equity if desired if the note is still outstanding on the maturity date.

Oustanding Shares: shares owned by shareholders such as investors or employees (could be in process of vesting).

Ownership (O): the % of a company a shareholder possesses prior to or post-closing of a financing.

Participation (Liquidation Preferences): is the right of a preferred stock to participate in remaining acquisition proceeds (on an as-converted to common stock basis, along with common stock) after the initial multiplier liquidation preference is satisfied. When preferred stockholders have a participation preference it’s called “double dipping” as preferred stockholder enjoys preferential return of capital in liquidation preference and then enjoys pro rata share of remaining proceeds. Participation can be capped (limited to a certain multiple) or uncapped.

Prepayment: in the context of convertible notes, payment of the principal and accrued interest by the startup before the note matures. This is generally only allowed if there is a majority of supermajority vote in favor of prepayment by the noteholders.

Post-Money Valuation (P_O): the valuation of the company after the round size is invested by the VC(s)

Pre-Money Valuation (P_M): what the investor is valuing the company at TODAY, prior to the investment

Priced round/financing: a round of financing in which the valuation and price per share of a unit of stock being sold is officially determined (as opposed to a SAFE or convertible note in which case the valuation is left officially undetermined)

Price Per Share (PPS): the cost of acquiring a share of company x, typically determined by pre-money valuation and fully diluted shares outstanding prior to close of financing

Primary transaction: is when the company (the “issuer”) sells shares for the first time to investors. Primary issuances must comply with U.S. securities laws — meaning they must either be registered or qualify for an exemption.

Principal: in the context of convertible notes, the amount of investment provided by the noteholder (investor) to the company through the convertible note. In an unfortunate scenario where the note never converts to equity (we will discuss this), the principal (plus any accrued interest) is what the company owes the noteholder (unless nuanced legal terms dictate otherwise). Assuming the note does convert to equity (the norm), the principal (plus any accrued interest) is the quantity used to calculate how many shares the note holder will receive upon conversion into equity.

Pro rata rights: give investors the right (but not obligation) to participate in future rounds of financing to maintain their initial level of percentage ownership in the company.

Pro rata on a dollar-for-dollar basis: gives the investor the right to invest an amount equal to or less than the amount invested in their first round à VC Z invested 200K in the seed round and has the right to invest 200k in the Series A

Pro rata on a fixed sum basis: least common, investors get the right to continue investing an amount as agreed upon that is decoupled from the investment amount. VC Z, who invested $1M in a seed, negotiates pro rata rights up to $700K - they will be able to invest up to $700K in each subsequent round of financing.

Pro Rata ROFR: gives particular investor(s) the right to another investors voluntarily waived pro rata in a future financing  

Protective provisions (negative controls) are contractual clauses that have the goal of preventing the company and its shareholders from taking actions without getting explicit consent of the investors protected by the provisions. They effectively are veto rights that investors (preferred shareholders) have on actions so that they are protected against expropriation.

Qualified financing: in the context of convertible notes/SAFEs, the round size of an equity financing typically must meet a certain dollar threshold to trigger conversion into equity.

QSBS: a tax benefit under Section 1202 that incentivizes investment into small businesses (often startups) with less than $50 million in aggregate gross asset value. Investors who purchase stock (common or preferred) directly (as opposed to via secondaries) from a c-corp business with less than $50 million in aggregate gross asset value and hold that investment for > 5 years, followed by a sale of the held stock, can avoid paying capital gains tax. The tax exclusion can be up to 100% of the gain, subject to limits: the greater of $10 million or 10x the original investment. Recently big beautiful bill updates: 1/ asset value threshold up to $75 million, 2/ cap limit extended to higher of $15 million or 10x investment, and 3/ exclusion starts to come into play after just three years (at 50% exclusion potential).

QSBS Gain Deferral: if you have to liquidate a position before the QSBS holding period requirement ends, you can defer the tax on capital gains, by reinvesting the gains into another QSBS qualified business within 60 days of liquidation. You also get to roll over the holding period of the original investment, continuing the clock (as opposed to starting over).

Redemption rights: allow the investor to sell their shares back to the company for a guaranteed return (often at the original puchase price), granting them a guaranteed exit/liquidity path no matter what.

Registration Rights: defines the circumstances in which investors can require the company to register its shares or piggyback on a registration of other classes of stock.

Repayment: in the context of convertible notes, the process of paying back the debt (plus any accrued interest) due to noteholders

Restricted Stock: company stock given to employees, usually as a bonus or additional compensation; does not have a strike price unlike options; usually awarded to company directors and executives and is subject to vesting

ROFR: gives existing shareholders the first chance to buy shares from an existing shareholder who is attempting to sell them to an outside third party. In simple terms, if I want to sell my shares in a startup as a founder or investor, I need to give existing company shareholders the right to purchase my stock at the agreed upon price with the third party first

Round Size or Investment Amount (R): how much capital the founder is raising for the financing or VC round

RSUs: refers to an agreement by a company to issue employees shares on a future date. One RSU is the right to get one common share. RSUs, like options, are also subject to a time-based vesting schedule and can be trigger based; however, RSUs don’t have a strike price and are instead released directly to the recipient after vesting without any need to “exercise” or buy them; typically awarded to lower level employees than restricted stock

SAFE: an agreement between an investor and a company that converts into equity in the next financing round if certain conditions are met

Secondary Transaction: the resale of existing shares by a current stockholder. A secondary occurs either: when the company buys back the shares (a redemption), or when a stockholder sells their shares to a third party (a transfer). Secondaries are also subject to securities rules, but the requirements are generally lighter for non-affiliated stockholders — especially in true peer-to-peer sales.

Seniority (Liquidation Preferences): refers to whether preference is senior, junior or even (pari passu) with other preferred stock. Senior preference means having a first-tier liquidation right, junior preference means having a liquidation right that is paid after the senior preferred and pari passu means preference amongst different preferred stock is the same time.

Single-trigger: states that only one event must occur to accelerate the vesting of your equity. If the company is acquired, you gain complete ownership over all your options

Stock options: incentive mechanisms granted to employees, advisors, and consultants. Employees joining a VC-backed startup typically receive an option grant, which allows them to acquire company common shares in the future at a certain price by “exercising vested options”

Strike Price: the predetermined price an employee pays to exercise (aka purchase) their stock options and turn their stock options into actual shares of the company owned outright. Tax regulations (IRS Section 409a) require options grants to have a strike price equal to or above the fair market value of the underlying company stock on the date that the option is granted

‘Success disaster’: employees run the risk of being harmed financially for building a succeeding business that has grown in value significantly

Supermajority: require votes in excess of the majority; frequenty established in the charter and typically only apply to certain scenarios / investor classes. Supermajority thresholds are often set to give a minority investor veto power.

Supervoting: Supervoting shares entails one class of shares having more votes than another voting class of shares. It distances cash flow and voting rights from each other. In the VC industry supervoting has been heavily debated as companies with supervoting like Theranos, Uber, and WeWork have encountered governance controversies. Founders are typically the beneficiaries (for better or worse) as their voting power becomes a multiple (like 10x) of their share count.

Tag-Along Rights: tag-along rights are triggered when the majority shareholders decide to sell the company. In a similar but opposite nature to Drag-Along, Tag-Along protects minority shareholder’s right to exit alongside the majority. While drag-along “forces” the minority to sell, tag-along allows the minority to sell on the same terms as the majority so they are not left behind

Tender Offer: is a proposal by a buyer (often an investor or the company itself) to purchase shares from multiple stockholders during a set time window and at a set price.

Uncapped Note/SAFE: a convertible note (or SAFE) that lacks a valuation cap

Up Round: when the pre-money valuation of a future financing is higher than the post-money valuation of the prior financing; often seen as a positive sign for the company

Valuation: the process of deriving an enterprise value for a company

Valuation Cap: a valuation cap is an investor favorable terms that puts a ceiling on the conversion price at which a convertible note or SAFE would convert into the equity security sold at the qualified financing.

VC Valuation Method: a valuation methodology that entails projecting a company’s exit value in the future and a VC’s required MOIC in order to back into an implied valuation and ownership level at time of investment (starting with the future and backing into the present)

Vesting: the process of gaining ownership over granted stock options

Voluntary conversion: in the context of convertible notes, gives the investor (noteholder) the power to convert into equity whenever desired (even before maturity) under specified details, negating any prepayment potential

Warrants: when issued/contracted, give the warrant holder the right to buy a certain number of shares of the company’s common or preferred stock at a predefined price over a specified period

Weighted Average Anti-Dilution Protection: adjusts the conversion price of the protected securities downward to a value between the price originally paid by the protected investor and the price paid by the investors in the current (down) round.

P_M + R = P_O ➡️ the pre-money valuation plus the round size = the post-money valuation

P_O – R = P_M ➡️ the post-money valuation minus the round size = the pre-money valuation

P_M / FDSO = PPS ➡️ the pre-money valuation divided by shares outstanding = price per share

R / P_O = O ➡️ round size divided by the post-money valuation is the amount of ownership acquired in a financing by participating investors

D / P_O = Daniel’s O ➡️ Daniel’s investment divided by the post-money valuation is the amount of ownership Daniel is acquiring in a financing

Fundraising

Rule #1: Communicate early and consistently. Goal: build long term relationships with a roster of investors before you kick off a process.

Rule #2: Ask for help. The only way to get maximal value out of your cap table is by asking for help. Especially when times are tough, great investors can potentially be the difference between make or break.

Rule #3: Keep knocking. As hard as it is, keep communicating with rejectors and make them aware of your progress.

Dont #1: OVER-FOMOing

Don’t #2: Focusing on who instead of what

Don’t #3: Exaggerating objectively “auditable” traction

Don’t #4: Asking for follow up intros from rejectors

Is there a topic you’d like us to cover? Don’t be a stranger! Ever want to dive deeper on a topic in VC Investing or Law?

We can be reached here:

Daniel Faierman ➡️ [email protected] 

Chuck Cotter ➡️ [email protected]

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✍️ Written by Daniel Faierman and Chuck Cotter 

Disclaimer: The information provided in this entry does not, and is not intended to, constitute legal or investment advice; instead, all information, content, and materials available in this entry are for general informational purposes only.