The maximum valuation at which a SAFE or note converts to equity. Protects early investors from excessive dilution if company value increases significantly.
Example: A $5M cap means your SAFE converts as if the company is worth $5M, even if Series A values it at $15M.
A percentage reduction on the Series A price for SAFE/note holders. Rewards early investors for taking more risk.
Example: With 20% discount, if Series A price is $1.00/share, SAFE investors pay $0.80/share.
Company value before the new investment. Used to calculate how much equity investors receive.
Example: $10M pre-money + $2M investment = investors own 16.7% of the company.
Company value after the investment. Pre-money plus the investment amount.
Example: $10M pre-money + $2M investment = $12M post-money.
Determines who gets paid first and how much in an exit (sale or liquidation). Protects investors from downside.
Example: 1x non-participating: investors get their money back OR their ownership share, whichever is higher.
Investors get their money back AND a share of remaining proceeds. Double-dips on returns. Generally unfavorable for founders.
Example: With participating, investors get $2M back first, then also get 20% of remaining exit proceeds.
Protects investors if you raise at a lower valuation (down round). Adjusts their share price retroactively.
Example: Weighted average anti-dilution adjusts investor price based on the size and severity of the down round.
Extreme anti-dilution that reprices all previous shares to the new lower price. Very punitive for founders.
Example: If Series A was at $1/share and Series B is at $0.50, full ratchet reprices all Series A shares to $0.50.
Right to invest in future rounds to maintain ownership percentage. Helps investors avoid dilution.
Example: If you own 10% and have pro-rata, you can invest enough in Series B to keep 10% ownership.
Shares reserved for employee equity grants. Typically 10-20% at Series A. Usually carved out of pre-money.
Example: 15% option pool means 15% of the company is set aside for employee stock options.
Schedule by which founders or employees earn their equity over time. Standard is 4 years with 1-year cliff.
Example: 4-year vesting with 1-year cliff: earn 25% after year 1, then monthly for 3 more years.
If you issue SAFEs with better terms later, MFN holders can adopt those terms. Protects early investors.
Example: If first SAFE has $6M cap and later SAFE has $5M cap, MFN holder can switch to $5M cap.
Right to sit on company board and vote on major decisions. Lead investors typically get one seat at Series A.
Example: Typical Series A board: 2 founders + 1 investor + 1 independent = 4 seats.
Investor rights to approve or veto certain actions (selling company, raising more money, changing charter).
Example: Investors may have veto rights on issuing new shares, taking debt, or selling the company.
If majority shareholders approve a sale, they can force minority shareholders to sell too.
Example: If 70% of shareholders approve an acquisition, drag-along forces remaining 30% to sell.
Investor right to receive financial statements and company updates. Standard for investors above a threshold.
Example: Investors get quarterly financials and annual audited statements.
Pitchkit analyzes term sheets and explains implications in plain language.
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