A term sheet's structure terms say more than its price term

The record

On 9 June 2020, Y Combinator published a model document, written by Jason Kwon and Aaron Harris, showing what the accelerator considers a standard and clean Series A term sheet from a good investor. The document does not standardize price: it states that a Series A lead 'generally wants 20% of the company,' but treats valuation as too situation-specific to template, and instead standardizes the structural terms YC says founders are least equipped to evaluate the first time they see them, because a term sheet is usually the first one a founder has ever read.

What the sources establish

Cooley GO's negotiating guide, last reviewed 23 January 2022, gives founders a way to prioritize inside that long list: a 'Rule of 3,' focusing negotiating effort on roughly three issues rather than every clause, because contesting every term reads as inexperience and can cost credibility with the investor. Cooley ranks valuation and dilution, liquidation preference, board composition, protective provisions, founder vesting, and antidilution protection as the terms most worth that attention, and states a specific norm for the one binding clause most term sheets contain regardless of what else is negotiated: an exclusivity period of 30 to 45 days is enough to close a deal. YC's document adds a concrete governance benchmark: founders keep board control in a 2-1 structure, and most commonly lose it in a 2-2-1 structure, two investors, two founders, and an independent director.

Scope and revision

YC's own document is explicit that it is a composite, not any single investor's actual paper: 'this term sheet doesn't belong to any particular VC,' drafted by YC to reflect what the accelerator sees most often across the thousands of term sheets its portfolio companies have signed. It lists non-standard 'dirty' terms by what a clean term sheet omits, rather than includes: a liquidation preference above 1x, participating preferred stock, cumulative dividends, and warrant coverage. This composite approach mirrors the wider ecosystem: NVCA's own model legal documents, offered free as an industry-embraced standard, exist for the same reason, to give founders and investors a common starting document rather than each firm drafting its own from scratch. Both documents caution that terms accepted at a Series A frequently carry forward into later rounds.

The decision in front of you

As editorial guidance beyond what either document states as a rule, a founder reading a term sheet can separate valuation, which is genuinely deal-specific, from control and economic-structure terms, which the model document treats as comparable across deals, and can check board composition and the liquidation-preference multiple before spending negotiating capital on lower-cost boilerplate.

• Does the board structure leave founders with a controlling majority, or move to an outside-controlled split?
• Is the liquidation preference exactly 1x and non-participating, matching the clean baseline?
• Which terms in this round will still be in place, unchanged, three rounds from now?

A term sheet is also a signal: the model document argues that an investor's insistence on structure-heavy terms says more about how that investor perceives risk than any accompanying reassurance does.