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Negotiation starts long before the term sheet. Your leverage comes from traction, alternatives and a disciplined process.
The process, step by step
- Prepare: deck, model, data room, valuation range and a clear use of funds.
- Pitch: first meetings, follow-ups, partner meetings.
- Interest and diligence preview: investors ask for the data room and references.
- Term sheet: usually non-binding except for exclusivity and confidentiality.
- Confirmatory due diligence: commercial, technical, legal, financial.
- Definitive agreements: share purchase, shareholders and investor-rights agreements.
- Closing and funding: often in tranches tied to milestones.
Term sheet items to understand
| Term | What it means | Watch for |
|---|---|---|
| Valuation (pre/post-money) | Price per share and implied company value | Founder dilution after the full round and option pool |
| Liquidation preference | Who gets paid first on an exit | Participating or multiple preferences |
| Anti-dilution | Protection if a later round prices lower | Full ratchet vs broad-based weighted average |
| Board and control rights | Board seats, vetoes, protective provisions | Vetoes over day-to-day operations |
| Milestone tranches | Funding released as targets are met | Vague or unattainable milestones |
| Vesting and leaver terms | Founder equity earned over time | Harsh bad-leaver provisions |
| Exclusivity (no-shop) | You stop talking to other investors | Keep it short (30–45 days) |
| Instruments | Equity, SAFE, convertible note, venture debt | Caps, discounts and maturity dates |
Negotiation principles
- Create alternatives: talk to several investors in parallel and keep non-dilutive options open.
- Negotiate the whole package. Control and preferences often matter more than headline valuation.
- Align on milestones and use of funds early.
- Hire a startup lawyer experienced with Canadian (and, if relevant, U.S.) venture financings, and have your accountant review tax implications.
- Value the investor: sector expertise, follow-on capital, customer introductions, reputation.
Cross-border note
Raising from U.S. investors may involve a U.S. holding company (for example a Delaware parent) or Canadian-compatible instruments. Get cross-border legal and tax advice before you agree to a structure.
Due diligence preparation
- Commercial: customer references, contracts, pipeline evidence.
- Legal: IP assignments, corporate records, employment, licences.
- Financial: model audit, tax status, grant compliance.
- Technical and regulatory: product or process validation, permits, safety, privacy.
This page is general guidance, not legal or financial advice. Obtain professional advice before signing any term sheet.