Do More Faster: TechStars Lessons to Accelerate Your Startup

Chapter 63. Get Help with Your Term Sheet

Jason Mendelson

Jason is a managing director at Foundry Group and has been a TechStars mentors since 2007.

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

First, realize that you'll never be as good at negotiating a term sheet as an investor who regularly invests in startups. And you'll also never be as good as his lawyer. 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 ones 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: returns and control. Returns refers to the end-of-the-day financial return the investor will get and the terms that have direct impact on these economics. Control refers to mechanisms that allow the investors to either affirmatively exercise control over the business or to veto certain decisions the company can make. If you are negotiating ...