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You can also expect to see this term at the top of your term sheet. How much is the investment?
If this is your lead investor term sheet in a priced round, there will be bullets covering the following:
How much the lead investor is putting in.
How much others are putting in.
This amount adds up to the total round size. The lead investor will say, “We’re putting in $1.5M, and we’re expecting $1.5M in aggregate from other investors.”
If you’re raising on a convertible, this section will include any stock that’s converting from safes or notes as part of the round, and it could have allowances for each of those.
Price per Share and Valuation
This term will include the price per share the investor will be paying, and the valuation the price is based on. We discussed the interplay between price, valuation, and dilution of ownership in Determining How Much to Raise.
important You may receive a term sheet with price per share blank. You and the investors are negotiating a valuation, and once that amount has been agreed upon, your lawyer will do the math to determine the price per share.
danger It’s common for VCs to just say “valuation” in an offer without specifying whether they mean pre-money or post-money valuation. For example, “I’ll write you a check for $5M at a $20M valuation.” But there is a big difference between a $20M pre-money valuation and a $20M post-money valuation. As a founder, it’s critical to be aware whether you’re discussing pre-money or post-money valuation, so speak up and make sure both sides are clear.
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