Term Sheets Decoded: What Every African Founder Should Know

The Terms That Actually Matter

Most founders focus on valuation, but experienced founders know that other terms can matter more. Liquidation preferences, anti-dilution provisions, and board composition can all significantly impact your outcomes—and your control over the company.

A $10M valuation with 2x participating preferred might be worse than an $8M valuation with standard 1x non-participating. Understanding these mechanics is essential before you sign.

Key Terms Explained

Liquidation preference determines who gets paid first in an exit. 1x non-participating is standard and founder-friendly—investors get their money back OR convert to common stock. Participating preferred means they get both, which can significantly reduce founder proceeds.

Anti-dilution protection matters if your company's valuation drops. Full ratchet anti-dilution is punitive—avoid it. Weighted average is standard and more reasonable. And pay attention to the option pool—a 20% pool created before investment comes from your shares, not investors'.

Negotiating Your Terms

The best time to negotiate is when you have options. If multiple investors are interested, you have leverage. Focus on the terms that matter most for your situation. And always have a lawyer who's seen African startup deals before—standard Silicon Valley terms don't always translate.