To prepare before you sign a financing term sheet, put the term sheet, your current cap table, the hiring plan that drives the option pool, any competing offer or alternative, and the board's priorities for the round into one request. Then instruct Pingpong to sort every term into economics, control, and what binds you at signing, explain in plain words what each one does to founders, employees, and existing investors, and list the questions your board will ask before approving. Ask it to flag anything that differs from your expectations and every point to raise with counsel. Pingpong helps you understand the document and prepare questions. Your lawyers review the terms and advise you on them.
This page is for chief executives, founders, and directors who have a term sheet in hand and a short window to respond. If you are still pitching, see war-game a fundraising deck before investors open it. Executive starting points live under Pingpong for executives.
Sort the terms into three groups
Economics. Valuation, round size, the option pool and whether its increase counts before or after the new money, liquidation preference and whether it participates, anti-dilution, and dividends. These decide who receives what in a sale.
Control. Board composition, protective provisions that give the new investor a veto, information rights, drag-along rights, and any founder vesting changes. These decide who makes decisions after the round.
What binds at signing. Most term sheet provisions are not binding, but exclusivity, confidentiality, and expense reimbursement usually are. These apply the day you sign, even if the round never closes.
Questions directors tend to ask
- What is the effective valuation once the option pool increase is counted?
- What do common holders receive in a modest sale, given the preference terms?
- Which decisions will now need the new investor's approval?
- How does the board's composition change, and who picks the independent seat?
- What happens to our runway and our alternatives if the deal falls apart during exclusivity?
A worked example
This example is illustrative and does not describe a customer. A 90-person developer tools company has a term sheet for a $20 million round at a $60 million pre-money valuation. The lead investor wants a signature within a week. A second firm is partway through diligence.
The chief executive pastes the term sheet, the cap table, the 18-month hiring plan, notes on the second firm's process, and the runway brief from the last board meeting.
A useful pass finds that the term sheet expands the option pool to 15% of the post-money total, up from about 8% today, with the increase counted before the new money. That lowers the effective pre-money valuation to about $54 million. The hiring plan needs roughly an 11% pool. The liquidation preference is one times and participating, which means the new investor takes its money back and then shares in what is left. The pass notes this matters most in a moderate sale and suggests asking counsel to model one.
On control, the new investor gets a board seat, and the independent seat is to be mutually agreed. A protective provision requires the investor's approval for any budget that differs from plan by more than 10%, which reaches into routine operating decisions. On binding terms, the 45-day exclusivity period would stop talks with the second firm, and expense reimbursement has no cap. The runway brief shows 14 months, so a failed close after 45 days would leave the company negotiating with less time.
The chief executive and general counsel prepare a short response. They ask to size the pool to the hiring plan, move to a non-participating preference, narrow the budget veto to the annual plan only, shorten exclusivity to 30 days, and cap expenses. The board meets before signing and reviews a one-page summary showing the effective valuation, the control changes, and the binding terms side by side.
A request you can copy
Below are a term sheet we have received, our cap table, our hiring plan, any alternative offers, and our board's priorities for the round. Sort every term into economics, control, and provisions that bind at signing. Explain each in plain words and what it means for founders, employees, and existing investors. Calculate the effective pre-money valuation after any option pool increase. List the questions our board is likely to ask before approving. Do not give legal advice. Mark each issue for our counsel.
For a rehearsal of tough investor questions before the pitch, see role-play the skeptical investor before the partner meeting.
How Pingpong runs the review
The web review app sends your request through several models in order. Each later model receives the original request and every earlier answer, with instructions to assess the work so far. Check every calculation it gives you against your cap table model. For the steps inside the app, see running your first review.
What a model can't review
A model does not know what terms are common in your sector this quarter, how this investor behaves after closing, or what your other investors' existing rights require. It is not your lawyer. Counsel reviews the term sheet and advises on what to negotiate.
When the round goes to a board vote, see war-game a decision before the board meeting. More guides live under work decisions before you commit.