1. Get comfortable with your potential investor. The identity of the investor is the most important item of a term sheet, and canSeed Money for Piggybank make or break a relationship.
  2. Be prepared to share control and information, and to listen. People who think they know it all – don’t.
  3. Realize that valuation is only a component of an economic deal. Unrealistic expectations are often an excuse for investors to move on. Preferences can have a more material economic impact than valuation.
  4. Non-economic issues can be more important in the long run, such as veto rights, ability to influence exit, control over new investors, etc.
  5. Have your corporate ducks in order. The simpler your cap table – the better. Missing documents, missing shares, missing minutes, too many outstanding options – all could be the kiss of death.
  6. Make sure your IP and confidential information are protected. NDAs and Assignment of Technology Agreements are a must.
  7. Don’t underestimate or overestimate the importance of patent protection. Don’t kill it by premature disclosure, but don’t think having a patent makes you invincible.
  8. Understand the Pros and Cons of Convertible Debt. What happens if there is no triggering event? Will future institutional investors like it?
  9. Have a general understanding of the lingo: full ratchet vs. weighted average; participating preferred; bring-along and tag-along, etc. But remember – only a fool has himself as his lawyer.
  10. Understand how decisions are made: the role of the board vs. the role of the shareholders; where protective provisions reside; the impact of fiduciary duties.