I'm in a difficult situation and trying to figure out my next steps.
Series A term sheet review. I've been dealing with this for about 13 weeks now and the situation isn't improving.
I have already done some research online but the other party is not cooperating.
Has anyone been through something similar? What worked for you?
I review Series A term sheets regularly and there are five key provisions that first-time founders most commonly overlook or misunderstand. Let me walk through them briefly since this thread could use some concrete guidance.
First, pay close attention to the anti-dilution protection. Weighted average is standard and founder-friendly. Full ratchet is aggressive and means that if the company does a down round, the investor gets repriced to the lower price as if they had invested at that price from the start. Full ratchet can devastate founder ownership in a downturn. Push hard for broad-based weighted average.
Second, understand the protective provisions section. This is a list of actions the company cannot take without investor consent. Standard items include issuing new shares, taking on debt above a threshold, and selling the company. Watch for overly broad provisions that require investor consent for ordinary business decisions like hiring above a salary threshold or entering new markets.
Third, review the drag-along rights carefully. These allow majority shareholders to force minority shareholders to participate in a sale. The threshold matters enormously. If it requires a majority of preferred AND a majority of common, founders retain some control. If it only requires a majority of all shares, the preferred investors could force a sale the founders oppose.
Fourth, look at the redemption rights. These allow investors to demand their money back after a certain number of years, typically five to seven. While rarely exercised, they give investors enormous leverage in negotiations years down the line. Try to negotiate them out entirely or push the timeline to seven or more years.