Startup Evolution / A Year-Long Journey through A Founder’s Toolkit: Navigating the Series A Term Sheet

Unlike pre-seed or seed rounds, which are frequently raised through SAFEs or convertible notes, the Series A typically introduces a full preferred stock financing with a detailed term sheet. These documents set the economic and governance framework that can shape a company for years to come.

For many founders, this is the first time they encounter terms like liquidation preferences, protective provisions or anti-dilution adjustments. Each provision carries both legal and strategic weight, and while there are “market standards,” what ultimately gets negotiated depends heavily on your company’s traction, how competitive the deal is among investors and the broader fundraising climate. Strong leverage can push terms toward the founder-friendly side; weaker leverage may tilt them toward investor protections.

This article highlights the key provisions in a Series A term sheet, explains why they matter and suggests practical ways founders can evaluate them. The focus is not on absolutes but on finding balanced positions that make sense for both sides and that reflect the realities of the market.

Valuation: Pre-Money vs. Post-Money

Valuation sets the baseline for ownership. Pre-money valuation is the company’s value before new investment; post-money valuation adds the investment amount.

Investors also consider the employee option pool when calculating ownership. In most U.S. deals, the pool increase is structured pre-money, meaning the dilution falls on existing holders, not the new investor. If possible, founders may prefer a post-money pool where the dilution is shared. A compromise may be negotiating the pool size to match an actual hiring plan rather than accepting an arbitrary percentage.

Liquidation Preferences

Liquidation preference determines how exit proceeds are distributed. The market norm is a one-times non-participating preference, which allows the investor to either take their initial investment back or convert it into common shares for their ownership percentage.

Participating preferred gives investors both their preference and a share of the remaining proceeds, which can significantly reduce the founder and employee payout in modest exits. While it is best to avoid participation, a compromise may be a cap on the participation multiple. Multiples above one-times are uncommon at Series A and should be carefully considered in light of the company’s leverage.

Anti-Dilution

Anti-dilution protections adjust conversion price if the company raises at a lower valuation later. The weighted-average formula is standard and balances investor protection with founder dilution.

Full ratchet protection, which resets the price entirely to the new low, is rarely founder-friendly and is rarely requested by investors, as it can have numerous unintended consequences.

Board Composition

Investors nearly always ask for a board seat at Series A. A three-person board (two founders, one investor) preserves founder control, while a five-person board (two founders, two investors, one independent) can shift influence depending on who selects the independent.

The balanced approach is ensuring that any independent director is mutually agreed upon. Larger boards may make sense as the company grows, but at Series A, many founders prefer to keep structures lean.

Protective Provisions

Protective provisions give preferred stockholders veto rights over major actions such as amending the charter, issuing new securities or selling the company. These are standard, but the scope varies.

Founders should aim to keep vetoes limited to major corporate events. More invasive provisions, such as vetoes over budgets or hiring, may restrict operational flexibility. A practical compromise is agreeing to customary provisions while pushing back on operational controls. Market conditions and investor competition often dictate how narrow or broad these provisions are in practice.

Option Pool Expansion

Option pools are almost always topped up at Series A, typically to around 10%. Most investors ask for this to be done pre-money. The compromise is to size the pool based on a realistic hiring plan rather than inflating it beyond what is needed.

Founders should run the numbers and ensure the impact of the pool is clearly reflected in the cap table. If negotiation leverage is strong, they may be able to shift some or all of the dilution to post-money.

Negotiation Priorities

• Recognize which terms are considered standard in 2025 (for example, one-times liquidation preference, weighted-average anti-dilution, customary protective provisions).
• Focus negotiation on terms that most directly affect control and economics.
• Understand that trade-offs are common; a higher valuation may come with more protective terms, while a lower valuation might allow for a cleaner structure.
• Align internally on priorities before negotiation.
• Leverage experienced legal counsel and cap table modeling to evaluate the practical impact of each provision.

Moving Forward

A Series A term sheet reflects the balance of risk and reward between founders and investors. The specifics depend not just on what is “market,” but also on company performance, investor appetite and the broader fundraising environment. By understanding the key provisions and being prepared to negotiate with context, founders can strike a balance that secures capital while preserving the flexibility to grow.

If you are preparing for a Series A, we can help review and negotiate your term sheet so the structure reflects both the legal best practices and the realities of today’s market.

Author Jason Acevedo is a partner in the Venture Capital & Emerging Growth practice group in the Corporate and Securities Department at Klehr Harrison.

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