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Let’s start with the basics: A VC investor will be issued shares of preferred stock, not common stock. Preferred stock, as the name suggests, is preferable because it grants certain key rights to the holders – making it far more valuable than common stock. One of those rights is a liquidation preference. The word “liquidation” is broadly defined in VC documentation to include not only the actual liquidation of the company (i.e., the disposition of the company’s assets) upon dissolution or bankruptcy, but also the sale of the company (whether via stock, assets or merger) to a third party or a change of control.

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It’s stupid to do anything non-standard in your seed round

He also seems to think that later round investors will be ok allowing him, the earliest investor, to keep his out of whack liquidation preference AND not insist on having one themselves. There is no chance a good investor will allow this. In fact, having out of the norm terms (like aggressive liquidation preferences) have a very high % chance of torpedoing your company’s ability to raise capital from a sophisticated investor.

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VC terms not seen: Maybe there is something new under the sun

More importantly, there is something in the investment docs that is not often (ever) seen in venture style investment documents. This investor want a post closing adjustment of the number of shares he got to adjust for variances in working capital from the working capital at the time of the term sheet to the time of closing. Now, this is a common concept in acquisition transactions, but I can’t recall ever seeing it in a venture style investment.

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How to Read a Term Sheet

When you're in need of funding, receiving a term sheet -- a legal document that, despite its name, is usually several pages long -- is a reason to celebrate. You have probably spent hours working hard to land an offer from investors, delivering countless pitches and presentations along the way. But don't be so quick to sign on the dotted line. Term sheets also represent a means for investors and venture capitalists to dilute your shares and gain control of your board.

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How to not over-optimize your Series A term sheet

A founder recently expressed his outrage to me that a VC wanted an 8% non-cumulative dividend preference on the preferred stock, given the historical lows of current interest rates. He didn’t realize that dividends in fast growing companies are almost never paid, thus making this provision essentially irrelevant and a relic of past practice. Even if the dividend preference was “out of market” at 10%, it probably wouldn’t have mattered.

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VC的Term Sheet是没有法律约束力的（除了保密条款和独家条款之外）。 尽管如此，VC通常有不错的职业道德，不会收回已经签署的Term Sheet，除非他们签字之后发现了非常严重的问题——比如创业者欺骗、违法背景、等等。红杉资本（Sequoia Capital）可以说是这个世界上最好的VC，他们投资的公司令人恐怖地占到NSADAQ总市值的10%，他们在过去10年只收回了1份Term Sheet（这个信息的来源很可靠）。

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You set the price; I’ll set the terms

The pre-money valuation of a deal lends itself to soundbite marketing and entrepreneurial chest-thumping. By driving pricing up, the entrepreneur can bring a big number back to his/her existing investors and Board, thereby validating what the entrepreneur has accomplished. This is all well and good; I’m all for entrepreneurs doing their fiduciary duty and battling to maximize pricing on the behalf of their existing investors. But a focus on pricing completely ignores the other half of the valuation equation, structure.

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