Term sheet clause 1 of 25 · Economics
Pre-money valuation in a term sheet
In plain English: The value of the company before the new money. Investor ownership = investment / (pre-money + investment). Typical: Agreed number, often negotiated against traction and competing interest.
Founder-friendly
Higher pre-money, pool excluded from pre-money.
Investor-friendly
Lower pre-money, large pool included.
What to watch for
Red flag
Check whether the option pool is included in the pre-money (see next clause).
How to model it
Don't judge this clause by reading it; put numbers on it. In our workbooks it's modelled in Round Simulator; Priced Rounds, so you can see what it changes in your ownership or your payout before you agree.
Negotiating it: valuation
Principle: Anchor with evidence, not hope.
- Use your Valuation Estimator range and comparable rounds to set a target and a floor.
- Let investors make the first offer when you can; if pushed, give a range backed by reasons.
- Trade valuation against things you care about more (pool size, board, speed).
Investor: "What valuation are you looking for?"
"We're seeing seed rounds for companies at our stage around [range]. Based on our growth and retention, we think [target] is fair. What matters most to us is finding the right partner and closing quickly."
One of the scripts from the Negotiation Playbook. The playbook has more for each topic, plus what to give and what to hold.
Not legal advice. Norms vary by country and market cycle. Have a startup lawyer review your term sheet before you sign.