In this episode of Investor Connect, Hall walks new and experienced investors through the term sheet basics that trip people up most often, starting with the type of security (SAFE, convertible note, or priced round), the total investment amount, and how pre-money valuation works in startup investing. He shares a simple ownership framework—pre-money plus investment equals post-money, and the investor’s ownership is investment divided by post-money—then points out additional items to watch for, including price per share (in priced rounds), conversion triggers (especially for SAFEs and notes), and dividends. Hall then explains how term sheets tend to be founder-friendly or investor-friendly, and how to spot the difference. Founder-friendly signals include no expiration date on the offer, the option pool coming from both founders and investors, no confidentiality agreement, no liquidation preference, and the company not paying investor legal fees; flip those and you’re looking at investor-friendly terms. He emphasizes that term sheets aren’t formulas—they’re negotiations—and that valuation, liquidation preferences, investor/founder rights, and redemption rights can be traded to balance a deal. Hall closes with a practical overview of convertible notes as a rolling-close debt instrument that converts to equity at maturity or a qualified priced round, along with the risks of stacking notes and creating more dilution than expected ahead of a Series A. He notes that many notes have few protective provisions (though the Angel Capital Association released a model note bringing more investor rights back in), and that notes typically don’t confer QSBS tax benefits because QSBS requires an equity holding period. Finally, he introduces 10 Capital’s “3x and 3” note, which gives investors a sole-discretion redemption right at year three for 3x the original investment and then moves to a revenue share agreement, invites interested investors to join the deal-review group, and wraps by moving the audience into breakout rooms and sharing that the recording and event details will be sent afterward. ________________________________________________________________________ For more episodes from Investor Connect, please visit the site at: http://investorconnect.org Check out our other podcasts here: https://investorconnect.org/ For Investors check out: https://tencapital.group/investor-landing/ For Startups check out: https://tencapital.group/company-landing/ For eGuides check out: https:/_/tencapital.group/education/ For upcoming Events, check out https://tencapital.group/events/ For Feedback please contact info@tencapital.group Please follow, share, and leave a review. Music courtesy of Bensound.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.