Venture Investment Term Sheets: Price

"In general, there are only two things that venture funds really care about when doing investments: economics and control. The term 'economics' refers to the end of the day return the investor will get and the terms that have direct impact on such return. The term 'control' refers to mechanisms which allow the investors to either affirmatively exercise control over the business or allow the investor to veto certain decisions the company can make.

If you are negotiating a deal and an investor is digging his or her feet in on a provision that doesn't affect the economics or control, they are probably blowing smoke, rather than elucidating substance.

Obviously the first term any entrepreneur is going to look at is the price. The pre-money and post-money terms are pretty easy to understand. The pre-money valuation is what the investor is valuing the company today, before investment, while the post-money valuation is simply the pre-money valuation plus the contemplated aggregate investment amount. There are two items to note within the valuation context: stock option pools and warrants..."

For more, read the rest of the first of a series of posts on VC term sheets from Brad Feld here.