We send people that link all the time to help them understand option pools. The main point of that post is to make it clear to founders that when an investor is saying they'll invest $X to get 20%, the dilution is more than 20% because of the impact of the pool.

I think if the pool is not part of the premoney, investors just adjust the valuation to compensate.

Just focus on the final output. Take the term sheet and work with your lawyer to model out how much you own after the round is closed. Is that a good deal or not? If you don't like it, there are multiple ways to increase your post-closing ownership. Moving the option pool into the post-money is one of the hardest ways to accomplish that because you are trying to move the investor up on both valuation and convention.

One thing I do in all my term sheets that might be a useful addition is to include a summary cap table showing the founders how much they own and our fund owns post-funding. That pre-empts any confusion over the impact of an option pool increase on each party.

To me it is totally unreasonable. We had a series A investor that required that. Their attorneys poked around and argued about every little thing and charged us $1200 an hour. They even had a $50k cap in the documents which they asked the VC to raise once they saw they were going to be able to exceed. The VC of course agreed because it wasn't his money and then proceeded to pressure us to accept it. We had already wasted so much time with these guys and racked up our own legal bills. So we were pretty much at their mercy.

If my company is going to pay your legal fees, then they work for me, not you and I will reserve the right to fire them and find someone really cheap instead.

The term sheet we posted is just meant to show what a pretty good term sheet looks like from a good investor. The investor having its legal fees reimbursed by the company is something that shows up all the time. Sure, you can negotiate that if you want. You can negotiate other things too, or choose not to. The way this usually plays out though is that unless you have the kind of leverage that lets you basically write your own term sheet, you have to prioritize, and most people prioritize getting what they want on valuation, control, clean terms, etc. before making sure to shift $30K in legal fees back to the investor.

Good question. The anti-dilution right is an adjustment to the investor's shares that occurs when the company does a down-round. The "broad-based" qualifier is a reference to the most company-friendly version of this because it requires the adjustment to take into account the scale of down-round in terms of dilution. For instance, if you closed a round at $20M post and then sold one share afterwards at $10M post, the adjustment would be negligible. There are other variations of anti-dilution adjustments that would ignore such considerations.

The anti-dilution adjustment is generally not something that applies to ordinary course dilution (like employee option grants).

Major investors concept (investor has to have invested at least $X) is often added in the definitives. Longer term sheets just state a threshold dollar amount; shorter ones (like this one) just skip that definition and just add it in the definitives.

Some minor wordsmithing that reflects lawyer and investor /founder preferences happens a fair amount.

The veto on company sales breaks founder friendly occasionally (you need a decent amount of leverage). Some examples:

1. It doesn’t exist 2. It only applies to sales that return less than X multiple of investor’s capital invested 3. It only applies to sales where the founders are getting retention packages (from acquirer) that substantially exceed their recent compensation

The veto on financings is present almost always. A founder would need rare leverage to get rid of it.

On both of these vetoes though there are additional constraints on abusive usage by investors — reputation being the most obvious one.

Take a look at the Model Legal documents from the NVCA: https://nvca.org/resources/model-legal-documents/ (free to download, requires giving up email)

It is typical that the term sheet results in ~5 different contracts: the Stock Purchase Agreement (through which the company actually sells stock), the Investor Rights Agreement, the Voting Agreement, the First Refusal and Co-Sale Agreement, and changes to the company's Certificate of Incorporation.

There are also sometimes opinions of counsel and other "ancillary" documents which are just as important but not typically negotiated as they're very standard.

It is mind-bogglingly routine that a company pays $30k to "expand" from the term sheet to definitive contracts, and then the VC firm spends an additional $15-30k++ (reimbursed by the company) to review that expansion to make sure the other firm did it right.

Delaware Court of Chancery is like a standards body for anything else: it's a set of well known, public rules.

Every major law firm has extensive experience in it.

Every major investor's law firm has extensive experience in it.

It doesn't use juries, it uses judges. Cases can move very quickly. The Chancery is well-funded, and the judges have deep experience in corporate law.

Delaware Court of Chancery, tons of precedent in corporate case law