Compare the deal you will own after closing, not the valuation on the first page of a term sheet. Put every offer into one fully diluted pro forma cap table, then test cash timing, dilution, liquidation proceeds, governance, and the probability that the financing actually closes. A high headline valuation can be worth less than a lower one if it requires a large pre-money option-pool increase, carries participating preference, or gives an investor vetoes that make the company harder to run.
The framework below is designed for founders evaluating two or more offers. It separates what is comparable today from what must be verified in definitive documents, and it flags where general venture practice does not establish an AI-specific market standard.
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How do I compare VC offers?
Use the same assumptions for every proposal and compare eight dimensions in this order:
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- Price and ownership: pre-money and post-money valuation, share price, converting securities, and fully diluted capitalization.
- Option-pool treatment: existing unallocated pool, target pool, and whether any top-up is counted before or after the new money.
- Downside and upside economics: liquidation preference, participation, dividends, anti-dilution, and warrants.
- Control: board seats, protective provisions, vetoes, and operational approvals.
- Future flexibility: pro rata, information, transfer, co-sale, drag-along, and rights that may affect the next round or a sale.
- Investor contribution: evidence of help with recruiting, customers, partnerships, and follow-on financing.
- Instrument mechanics: whether the proposal is priced preferred stock, a SAFE, or a convertible note.
Do not rank offers until each one is translated into the same ownership and exit model. A signed term sheet is not the financing close; definitive agreements, remaining conditions, and the closing itself still matter.
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Start with a common, fully diluted cap table
Ask each investor for the assumptions behind the offer and enter them in one model. A pro forma cap table shows who owns what immediately before and after the financing, including securities that have not yet converted. Carta’s explanation of pro forma cap tables is a useful modeling reference: https://carta.com/learn/startups/fundraising/pro-forma-cap-table/.
Inputs to collect
- Every founder, employee, advisor, and existing investor share count.
- Authorized, issued, and unissued shares, with the capitalization definition used in the term sheet.
- Outstanding SAFEs and convertible notes, including principal, accrued interest, cap, discount, maturity, and conversion provisions.
- Current option-pool size, the unallocated portion, and the pool target requested by the new investor.
- New money, pre-money valuation, post-money valuation, price per share, and the security issued.
- Any warrants, side letters, pro rata rights, or other instruments that alter the share count or economics.
Normalize the valuation math
For a priced round, check whether the stated pre-money and post-money figures reconcile with the investment amount. In the simplest case, post-money valuation equals pre-money valuation plus new money, but the capitalization definition can change the resulting share price and ownership. Confirm whether the option-pool increase is included in the pre-money capitalization or created after the investment.
For a post-money SAFE, the basic ownership sold is the investment divided by the post-money cap. A $2 million SAFE with a $20 million post-money cap therefore represents 10% before accounting for other SAFEs, later option-pool changes, or special provisions. That arithmetic is a starting point, not a substitute for reading the actual SAFE and side letters.
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Suppose two hypothetical offers each provide $8 million. Offer A is a priced round at a $32 million post-money valuation, implying 25% for the new money before any additional pool or security adjustments. Offer B is a $40 million post-money SAFE cap, implying 20% on the cap formula. If Offer A requires a pre-money option-pool top-up while Offer B does not, founder ownership can reverse the apparent advantage. Recalculate both offers using the exact capitalization definition in the documents rather than relying on these simplified percentages.
Compare cash, timing, and the probability of closing
Cash that arrives late or only after a difficult condition is not equivalent to cash available for payroll next month. Record these items for every proposal:
- Lead investor amount and the amount each other investor has actually committed.
- Whether the syndicate is firm, soft-circled, or still subject to investment-committee approval.
- Diligence deliverables, legal opinions, board or shareholder approvals, and other conditions to funding.
- Tranches, milestone releases, minimum cash requirements, or rights to cancel before closing.
- Exclusivity or no-shop period, confidentiality obligations, expense reimbursement, and deadlines.
- Expected signing date, definitive-document date, and wire date.
Ask what can still change between signing and closing. A term sheet commonly contains both binding and nonbinding sections: confidentiality, exclusivity, access to information, expenses, and governing-law provisions may bind immediately even while valuation and the final preferred-stock terms remain subject to definitive agreements. Obtain counsel’s interpretation for the jurisdiction that governs your company.
Rank #2
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Questions that expose timing risk
- What approvals remain after the term sheet is signed?
- Is the lead obligated to fund if another syndicate member drops out?
- Can the investor walk away after diligence discovers a previously unknown issue?
- What happens if the closing date slips past your cash-out date?
- Does the no-shop prevent you from accepting a better offer or merely from soliciting one?
Model founder and employee ownership after every transaction
Headline valuation does not tell you how much of the company existing holders retain. Calculate the post-closing percentage for founders, employees, each existing investor, and the new investor after every SAFE or note conversion and every option-pool adjustment.
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Record the existing unallocated pool and the target pool separately. If a new pool is created or increased before the financing, that dilution generally falls on existing holders. If it is created after the new money, the new investor shares more of that dilution. The exact result depends on the share-count definition and the offer documents, so model the number of shares rather than applying a rule of thumb.
Include options needed for the next 12 to 24 months of hiring in a sensitivity case, but do not silently add a pool that an offer does not require. Show one model using the investor’s requested pool and another using the pool your hiring plan actually supports.
Converting SAFEs and notes
Add ownership sold across all post-money SAFEs. Check each cap, discount, most-favored-nation (MFN) provision, and pro rata side letter. A note may convert at a cap or discount, accrue interest before conversion, reach maturity, or require repayment. Those differences can materially change the fully diluted share count.
Compare exit economics at low, middle, and high outcomes
Build an exit waterfall for at least three hypothetical sale values. The purpose is to show when a preference dominates and when ordinary ownership percentages become more important.
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Terms that change the waterfall
- Liquidation preference: the amount preferred holders receive before common holders. A preference greater than 1x increases the amount taken off the top.
- Non-participating preferred: the investor generally chooses either the preference or the as-converted share of proceeds.
- Participating preferred: the investor receives the preference and then participates in the remaining proceeds according to its ownership, subject to the negotiated terms.
- Cumulative dividends: accrued dividends can increase the amount owed before common participates.
- Anti-dilution: down-round adjustments can change conversion economics and later ownership.
- Warrants: additional purchase rights can increase the investor’s eventual share or proceeds.
Y Combinator’s Series A term-sheet guidance specifically identifies greater-than-1x preferences, participating preferred, cumulative dividends, and warrants as structures that can shift economics toward investors: https://www.ycombinator.com/series_a_term_sheet/.
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How to run the scenarios
- List the seniority of debt, notes, and each preferred round.
- Apply the preference and any accrued dividend to the lowest exit case first.
- Calculate the investor’s as-converted percentage.
- Apply participation, caps, or conversion choices exactly as written.
- Distribute the residual to common and participating holders.
- Repeat at a middle and high exit value.
Do not present one “expected” exit. A structure that is tolerable at a very large outcome may leave founders and employees with little at a middling sale, while a clean non-participating preference may matter less in a large success.
Compare control, board composition, and vetoes
Ownership and control are separate. A founder can hold a majority of shares yet lose practical operating freedom through board rights or protective provisions.
Board questions
- How many seats exist immediately after closing?
- Who appoints each seat: founders, the lead, a group of investors, or an independent?
- Can the lead replace its director if ownership falls below a threshold?
- Is there an observer seat with access to board materials?
- What happens if the board is deadlocked?
Protective provisions and operational approvals
List every action requiring investor or preferred-class consent. Common examples include issuing senior securities, changing the charter, selling the company, paying dividends, taking on debt, increasing the option pool, changing the board size, or approving a related-party transaction. Some term sheets also require approval for budgets, senior hiring, acquisitions, or a pivot. Compare not only the number of vetoes but also the percentage of preferred holders needed to exercise them.
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For an AI company, ask whether a veto could delay a model release, a compute commitment, a data-license purchase, or a strategic partnership. The general venture sources do not establish that any particular AI-specific approval is standard; treat each clause as a negotiated departure requiring a business reason.
Check future-round and transfer rights
Future rights can be valuable, but they can also constrain the next financing or a sale. Compare:
- Pro rata rights: the ability to maintain ownership in later rounds, including whether the right is automatic, capped, or subject to minimum participation.
- Information rights: financial statements, budgets, inspection rights, and reporting frequency.
- Anti-dilution: broad-based or narrow-based formulas, carve-outs, and the trigger price.
- Transfer and co-sale: restrictions on transfers and whether investors can sell alongside founders.
- Drag-along: who can compel a sale, what approvals are required, and how liability is allocated.
- Major-investor thresholds: rights that disappear or expand when an investor’s ownership changes.
Ask whether a right sets a precedent that later investors will demand. A broad veto or unusually senior preference may make the next round harder to syndicate, even if it looks acceptable in the current negotiation.
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Understand the financing instrument before comparing the price
Different instruments postpone or allocate risk differently. Compare the legal documents, not just the cap or valuation shown in a summary.
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| Instrument | What you receive now | Key economics to compare | Risks and priorities |
|---|---|---|---|
| Priced preferred round | Preferred shares issued at a negotiated price | Pre-money and post-money valuation, share price, preference, participation, dividends, anti-dilution, board and protective provisions | Negotiated rights are fixed at closing; the round establishes a valuation and can create extensive governance obligations |
| Post-money SAFE | A contractual right to future shares, not debt or current stock | Post-money cap, discount, MFN, conversion trigger, pro rata side letter, and all other outstanding SAFEs | Ownership sold accumulates across SAFEs; future pool changes and later financing can alter the final percentage |
| Convertible note | Debt that may convert into equity | Cap, discount, interest rate and accrual, maturity, repayment or conversion terms, and seniority | Debt is senior to equity in a sale or wind-down; maturity can create a repayment or renegotiation deadline |
Y Combinator’s instrument comparison explains these distinctions and the debt priority of notes: https://www.ycombinator.com/safe/safe-vs-convertible-note. Its SAFE materials also cover caps, discounts, MFN provisions, conversion, and pro rata rights: https://www.ycombinator.com/safe.
Questions for offers using different instruments
- What ownership percentage does each proposal sell after all existing SAFEs and notes convert?
- When does the security convert, and what happens if no qualifying financing occurs?
- Can the investor demand repayment, and what is senior to the new money?
- Do discount, MFN, or pro rata terms create obligations in a later round?
- Which rights exist immediately and which begin only after conversion?
Evaluate the investor’s contribution as a claim to verify
Do not assign a dollar value to “help” until you have evidence. Ask for founder references from companies that faced a setback, not only successful exits. Verify specific claims about:
- Recruiting introductions for technical, product, and go-to-market roles.
- Customer, distribution, cloud, or strategic-partner access relevant to your product.
- Follow-on financing support during a weak market or missed milestone.
- Response speed, board behavior, and willingness to help without taking over operations.
- Experience with regulated data, enterprise procurement, or safety review when those issues affect your AI product.
The available general venture guidance does not provide comparable investor-performance data. Treat references and documented introductions as diligence, not as guaranteed value.
“Good investors would rather address economic risks by negotiating valuation, and are otherwise happy to give standard terms because they know that the real money in venture is not made with structure, but by building long-term value, which they are confident in their ability to help you do.”
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This is Y Combinator’s guidance, not a universal empirical finding. Use it as a negotiation principle to discuss unusual economics and test whether an investor can demonstrate long-term support.
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What is and is not established about AI-specific terms
An AI startup may need contracts covering training data, model weights, compute commitments, open-source components, model outputs, safety incidents, or distribution rights. The general venture references used here do not establish current market prevalence or a standard form for those provisions.
That does not make the issues unimportant. Ask counsel to identify:
- Who owns data sets, fine-tuned weights, evaluation data, prompts, and derivative models.
- Whether an investor or strategic partner receives a license, exclusivity, audit right, or consent right over model use.
- Who bears costs and liability for compute commitments, data-rights disputes, security incidents, or model misuse.
- Whether a change in model provider, data source, or distribution channel triggers an approval right.
- How confidential research, customer data, and jointly developed improvements are handled after a sale or founder departure.
Do not describe any of these provisions as “standard for AI” without evidence specific to the jurisdiction, stage, and transaction.
Use market figures only as context, not as a pricing rule
Carta reported that 93% of pre-seed rounds were structured as SAFEs in the second quarter of 2026, representing 95% when measured by capital raised. The same guide reported a median Series A post-money valuation of $76.3 million on $14.7 million raised, with founder dilution around 18.7% in Q2 2026. These are Carta’s market figures for that quarter, not AI-specific benchmarks or a valuation recommendation for your company. Stage, geography, company profile, and market conditions can produce very different outcomes. Recheck the quarter and publisher before relying on a volatile market statistic: https://carta.com/learn/startups/fundraising/term-sheets/.
Build a side-by-side offer sheet
Keep one row per decision and one column per offer. If a value is absent, mark it as “not stated—obtain from the term sheet” rather than assuming the most founder-friendly interpretation.
| Dimension | Offer A | Offer B | What to normalize or model |
|---|---|---|---|
| Amount and timing | Offer-specific | Offer-specific | Lead commitment, syndicate certainty, conditions, diligence, and close date |
| Instrument and price | Offer-specific | Offer-specific | Priced equity, SAFE, or note; cap or discount; pre- or post-money basis |
| Ownership after close | Offer-specific | Offer-specific | Existing shares, converting securities, option pool, and new shares |
| Exit proceeds | Offer-specific | Offer-specific | Low, middle, and high exits; preference stack and participation |
| Governance | Offer-specific | Offer-specific | Board composition, veto scope, protective provisions, and operational approvals |
| Future rights | Offer-specific | Offer-specific | Pro rata, information, anti-dilution, transfer, co-sale, and drag-along |
| Binding provisions | Offer-specific | Offer-specific | No-shop, confidentiality, fees, deadlines, and conditions |
| Investor contribution | Offer-specific | Offer-specific | Documented proof and founder references; do not treat promises as guaranteed |
A practical decision process before signing
- Freeze the facts: obtain the latest cap table, every SAFE and note, the employee-option ledger, and each written offer.
- Set common assumptions: use identical share-count definitions, pool treatment, conversion rules, and exit values.
- Model ownership: calculate founder, employee, existing-investor, and new-investor percentages after conversion and the requested pool.
- Model proceeds: run the preference waterfall at low, middle, and high exits, including debt seniority.
- Map control: list board seats, observer rights, consent thresholds, and each operational veto.
- Score certainty: record conditions, syndicate status, no-shop duration, and the date cash is expected to arrive.
- Verify investor claims: complete references focused on difficult periods and concrete assistance.
- Negotiate by priority: decide which terms are must-haves, tradable, or unacceptable before discussing a final package.
- Have counsel review: compare the term sheet with the definitive charter, stock-purchase agreement, investor-rights agreement, voting agreement, and any side letters.
- Confirm the close: do not spend proceeds until the required signatures, approvals, and wire transfer are complete.
YC provides separate SAFE forms for the United States, Canada, the Cayman Islands, and Singapore and advises consulting counsel licensed in the relevant jurisdiction. The same jurisdiction-specific caution applies to priced rounds and notes.
Common comparison mistakes and fixes
- Choosing the highest valuation: replace the ranking with post-closing ownership and exit proceeds.
- Ignoring the option pool: show the pool before and after the financing and identify who bears the dilution.
- Adding SAFE caps as if they were all the same: separate post-money and pre-money mechanics, discounts, MFN terms, and side letters.
- Treating a note like a SAFE: include interest, maturity, repayment, and debt priority.
- Looking only at a large exit: model a middling sale where preferences can dominate.
- Assuming a term sheet is the close: track binding clauses, remaining conditions, definitive documents, and the wire date.
- Counting introductions as guaranteed value: verify them through references and specific, documented commitments.
- Calling AI clauses standard: identify the exact data, weight, compute, or distribution right and have counsel assess it.
- Using market medians as a target: treat dated, non-AI-specific figures as context only.
Further reading
For a physical overview of venture deal structure, term sheets, financing stages, and negotiation, Wiley lists Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, fourth edition, by Brad Feld and Jason Mendelson (2019), as a 368-page hardcover: https://www.wiley-vch.de/en/areas-interest/finance-economics-law/venture-deals-978-1-119-59482-6. Confirm the current edition and availability before purchasing.
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The strongest VC offer is the one that leaves the company adequately funded, gives founders a workable share of future value, preserves the ability to operate and raise the next round, and has a credible path to closing. Build the common pro forma, stress-test the preference waterfall, read every control and binding clause, and have qualified counsel review the final documents before you sign.
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