How to Evaluate Venture Funding Offers — A Founder’s Checklist

Receiving a term sheet is exciting, but the headline valuation tells only part of the story. Many term sheets include provisions that materially affect control, future financing and founder economics. This checklist helps founders evaluate offers holistically.

1. Understand the capitalization impact

Run a post-money cap table to show dilution across scenarios: base deal, conversion of options, and potential new hires. Look at traction milestones that could trigger additional dilution.

2. Liquidation preferences and preferences stack

Ask whether liquidation preference is 1x or greater, and whether it is participating or non-participating. Participating preferences can significantly reduce founder take at exit.

3. Protective provisions and governance

Review board composition, veto rights and which actions require investor approval. Excessive protective provisions can slow growth and limit hiring or capital allocation decisions.

4. Anti-dilution protections

Full ratchet anti-dilution is rare for founders and warrants caution. Weighted average protection is more common; understand how future down rounds will impact ownership.

5. Vesting and acceleration

Founder re-vesting or double-trigger acceleration terms matter. If you are being asked to re‑vest, clarify the vesting schedule and acceleration on exit.

6. Use of funds and milestones

Ensure the investor’s expectations for use of proceeds align with your roadmap. Milestone-linked tranches should be realistic and clearly defined.

7. Employee option pool

Confirm whether the option pool is included in the pre- or post-money calculation. A large pre-money pool can create hidden dilution.

8. Follow-on rights and pro-rata

Investors often request pro-rata rights to maintain ownership in future rounds. This is normal, but consider whether it limits your ability to bring in strategic investors.

9. Warrants and other hidden economics

Some deals include warrants, convertible notes or revenue-sharing clauses. Model their impact on future returns.

10. Reputation and value-add of the investor

Beyond terms, evaluate the investor’s network, track record in your category, and how they support portfolio companies operationally. The right partner can accelerate hiring, customer introductions and follow‑on funding.

Final step: get expert help

Hire experienced counsel and a CFO or advisor to run scenario modeling. A small cost upfront can protect founders from unfavorable long-term outcomes.

Actionable checklist: Run cap table scenarios, verify preference stacks, confirm pool treatment and get legal counsel to annotate the term sheet. Don’t sign until you’ve modeled founder economics under multiple outcomes.

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