Pro-Forma Blog

How Do I Communicate the Terms for My Seed Capital Raise?

The Missing "Ask"

Let’s assume you’ve finished your startup planning and assembled your pitch deck and it’s time to make your pitch to investors. At this stage, you will be focused on Friends and Family, Angel Investors, and crowd funding. All will need to know the terms of your round.

I’ve been a startup investor for over 25 years and I currently receive several pitch decks per day. Over the years I’ve seen thousands of pitch decks. Recently, I went back and looked at the last 100 or so. One of most frustrating things for me is the missing “ask”. No matter how impressive the idea or presentation, if I get a pitch deck without a clear ask of the amount and terms of the raise, it’s wasted effort. I flip through a pitch deck in a matter of seconds and I want the full picture.

But I understand the issue – I didn’t have a clue either on my first startup decades ago, and because of my lack of familiarity of the definitions of the various terms, I struggled to clearly communicate anything beyond how much I was trying to raise.

If you do not clearly and comprehensively present the terms, it might lead to a series of questions along these lines, which can get confusing really quickly:

  • What is your Pre-Money Valuation?
  • How many total shares (units) are currently outstanding?
  • How much of the company are you selling in this round?
  • What is the type of security you’re selling in this round?
  • What does your Cap Table look like?
  • Are you planning on raising subsequent rounds? And, if so, what kind of dilution can I expect?
  • What kind of return can I expect from this investment?

Pre-Seed and Seed Round Terms

Let’s explore the key components and language to include in one of the most critical slides in your pitch deck in the form of a “Summary Term Sheet”

While Series A venture capital investors are typically calling the shots and pricing the deal for a venture round, in the early stages of raising capital (pre-seed and seed rounds), entrepreneurs are typically presenting the terms. 

There are three types of investments at the earliest stage and each need to be presented with the proper terms:

  1. SAFE (Simple Agreement for Future Equity)
  2. Convertible Note 
  3. Priced Common Round

Summary Term Sheet Example

Example of a summary Term Sheet that we recommend every pitch deck includes. The Pro-Forma capital raise forecast tool creates this output in PDF form to make it super easy to explain your terms.

Simple Agreement for Future Equity

The initial investment capital in a startup usually comes in the form of a SAFE (simple agreement for future equity) or a convertible note. Both forms of investment convert into equity in a converting round such as a Series A in a “priced” Common Round. However, that is simply the answer to the type of security you’re offering, and each type comes with a different set of terms.

Seed rounds can get complicated because it’s a lot like herding cats. These early-stage rounds are often comprised of half a dozen or more angels. If there is a lead angel that is investing more than the others and is taking on a leadership role in shepherding the investment, such as taking on a board seat, they will likely step forward to negotiate the terms and “price” the round.

When you start socializing your early-stage round, you will want to put a stake in the ground on your terms. I recommend that you present a very clear summary of the terms that answer most questions in one fell swoop. It’s very frustrating to have to drag out the details of a potential investment one deal point at a time. 

To greatly simplify this process, our Pro-Forma app shows clearly what terms go with what type of investment and builds a beautiful term sheet summary for you automatically (see the graphic above). To make it easy, we even have pre-entered the current average terms for you for each round.

Investor Return Summary

Another one of the features we built into the capital raise forecasting of our Pro-Forma app is an Investor Return Summary (with a proceeds waterfall shown in the figure below) that clearly shows investors of all classes what your plan looks like for them at various exit values. Importantly, this also shows the priority of the proceeds payout – as applicable based on the terms.

Our app enables you to easily run multiple “what-if?” scenarios to game plan different types of investments and different terms in multiple future rounds and evaluate investors’ returns.

When you settle on a scenario that you like, the Proceeds Waterfall makes it simple to discuss and negotiate the capital raise terms and settle on a mutually-agreeable deal.

Investor Proceeds Waterfall

Example of an investor proceeds waterfall that we recommend be included in pitch decks. Our app outputs a nicely-formatted report for this purpose.

In this Post

Related Content

Join Our Newsletter

Ask an Expert

Scroll to Top