lev-os Analyzing Venture Deal Terms
Evaluates VC term sheet provisions across economic terms, control provisions, and cap table impact to support founders, investors, or counsel in deal negotiation and structuring.
When To Use
- Reviewing a new term sheet before signing or counter-proposing
- Comparing multiple term sheets from competing investors
- Modeling dilution and payout scenarios across financing rounds
- Advising founders or boards on protective provisions, liquidation preferences, or anti-dilution mechanics
- Preparing for Series A through growth-stage financings, bridge notes, or SAFE conversions
Inputs To Gather
- Term sheet or LOI — full text including all exhibits and side letters
- Current cap table — shares outstanding by class, option pool size, convertible instruments (SAFEs, notes) with caps/discounts
- Prior round documents — previous preferred stock terms, existing protective provisions, prior liquidation preferences
- Company financials — latest valuation, revenue run-rate, and burn rate (for context on pricing reasonableness)
- Investor identity — lead investor, co-investors, and any strategic investors (affects governance analysis)
- Founder/management goals — control retention priorities, exit timeline expectations, follow-on funding plans
Workflow
Parse economic terms
- Extract pre-money valuation, round size, price per share, and implied post-money valuation
- Identify liquidation preference structure: 1x non-participating vs. participating (capped or uncapped)
- Note anti-dilution provision type: broad-based weighted average, narrow-based, or full ratchet
- Flag pay-to-play provisions and their trigger conditions
- Identify any dividends (cumulative vs. non-cumulative, rate, and accrual terms)
Analyze control and governance provisions
- Map board composition: investor seats, founder seats, independent seats, and observer rights
- List protective provisions (veto rights) — categorize as standard vs. aggressive
- Standard: amendments to charter affecting preferred, new senior/pari passu equity, change of control, dissolution
- Aggressive: annual budget approval, executive hiring/firing, debt above low thresholds, any related-party transaction
- Review drag-along and tag-along rights, triggers, and thresholds
- Assess voting agreement terms and any investor consent requirements for future rounds
Model cap table impact
- Build pre-money and post-money cap tables showing ownership percentages by stakeholder
- Calculate option pool expansion (pre-money shuffle) and its dilutive effect on founders
- Model SAFE/note conversion mechanics: identify conversion price, discount application, and cap interaction
- Run waterfall analysis for at least three exit scenarios:
- Downside (1x–2x invested capital)
- Base case (3x–5x invested capital)
- Upside (10x+ invested capital)
- Show per-share proceeds and total payout by class at each scenario, highlighting participation cap breakpoints
Benchmark against market norms
- Compare valuation multiples to sector/stage comparables [VERIFY: current market data source]
- Flag terms that deviate from NVCA model documents or prevailing market standards
- Note any unusual provisions: redemption rights, IPO ratchets, milestone-based tranches, full-ratchet anti-dilution
Identify negotiation priorities
- Rank terms by economic impact (quantified where possible) and control significance
- Distinguish must-fix terms from nice-to-have improvements
- Suggest specific counter-proposal language for high-priority items
Output
Structure the analysis report with these sections:
- Deal Summary — one-paragraph overview: round size, valuation, lead investor, key headline terms
- Economic Terms Analysis — table of economic provisions with market benchmark comparison (standard / favorable / aggressive)
- Control & Governance Analysis — board composition diagram, protective provision matrix, and risk flags
- Cap Table Model — pre/post cap tables, option pool impact, and waterfall payout tables at three exit scenarios
- Key Findings — numbered list of the 5–10 most significant terms with plain-language explanation of impact
- Negotiation Recommendations — prioritized list of proposed changes with rationale and suggested language
- Open Items — any missing information, ambiguous terms, or items requiring [VERIFY] confirmation
Quality Checks
- Verify that all share counts and percentages reconcile across cap table calculations
- Confirm liquidation preference stacking order matches the actual seniority of each preferred series
- Ensure anti-dilution modeling uses the correct formula (broad-based weighted average denominators include all common equivalents) [VERIFY: confirm instrument-specific conversion terms]
- Cross-check that protective provision analysis accounts for existing preferred series rights, not just the new round
- Validate that option pool percentage is calculated on a post-money basis (standard) vs. pre-money — flag if term sheet is ambiguous
- Confirm SAFE/note conversion scenarios account for both cap-based and discount-based pricing, using the more favorable to the holder
- Flag any term where jurisdiction-specific securities law may affect enforceability [VERIFY: state of incorporation, blue sky requirements]