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Add signed Settlement Term Sheet Template

welcome to no fear equity a series where we break down startup equity and fundraising in terms that are easy to understand i'm sophia sang and today we brought in a real startup lawyer to walk through a series a term sheet let's get into it [Music] okay so if you're raising a price round you'll need to understand a term sheet which can be tricky because there's a lot of legal language that you have to wrap your head around luckily here at carda we have some really smart friends so today we're joined by mike laplate he's a startup attorney at one of the most trusted firms in the business perkins cui hey mike hey sophia thanks for having me mike has worked with thousands of startups over the years and what he's gonna do today is help us break down all the important parts of a series a term sheet so without further ado let's dive in [Music] okay so what i think is important here is that there's going to be a stated free money valuation in your terms this particular company is raising 5 million on a 20 million dollar free money valuation generally when you do your series a round this is your first term sheet and so that pre-money valuation is essentially what like the founding team's equity is for but what's important for founders to understand is that that stated free money valuation that's not the effective free money valuation right so if you want to understand what people are valuing your personal equity at you need to understand the effective free money not the stated free money what a free money evaluation does is it says here's what the value of the company is before we take this investment right but there's other things to be considered in there for example one of those things is this is the option pool so an investor is always going to push for a bigger pool they're going to push for 12 10 something like that because that's their protection from dilution it only dilutes the founders here it's going to be 10 of their company on a post money basis that 10 pool that the size of that pool is a negotiation lever for the investor and a lot of founders don't understand that they don't get how that lever affects their value of their stock and their dilution so if you've got a 10 pool post money is going to be 25 million dollars 10 of that is worth two and a half million dollars and so you have to take two and a half million dollars out of your pre-money valuation that's the effect of pre-money valuation that's why the size of this option pool is really important to you because the bigger the pool the lower your free money and founders don't really grasp that when they're negotiating these things they see the 20 million free and think that's fixed...