Understanding the key terms in a venture capital deal is vital for entrepreneurs:
1. Valuation: The pre-money and post-money valuation determine the company's worth before and after the investment. 2. Equity Stake: The percentage of ownership that the VC firm will receive in exchange for their investment. 3. Term Sheet: A non-binding agreement outlining the basic terms and conditions of the investment. 4. Liquidation Preference: Specifies the order in which investors are paid in the event of a liquidation, often giving VCs priority over other shareholders. 5. Vesting Schedule: Details how and when founders and employees will earn their equity over time.