You've got traction, and you're ready to raise, and then an investor asks, "What valuation are you targeting?"
Valuation and term sheets feel like a foreign language until you learn to read the signals.
Before you sign anything, our Term Sheet Comparison Checklist lays the key clauses side by side so you know exactly what you are agreeing to.
How Early-Stage Valuation Works
At the early stage, valuation is closer to a feeling, driven far more by narrative, traction, team, and market size than by financials. Investors ask: does the story make me believe, what have you proven, can this team win, and is the market big enough to return a fund? In recent years, most pre-seed rounds have landed around $5M-$10M post-money, but don't over-index on the number. A useful rule of thumb: raise 12 to 18 months of runway and give up roughly 15 to 25 percent equity. If that math breaks your cap table, adjust the round size or the valuation.
Term Sheets 101
A term sheet is where the real deal lives.
- Valuation/price per share: what the company is worth on paper and how much equity you're selling.
- Liquidation preference: investors usually get their money back before you see anything in an exit. 1x non-participating is standard; anything else, ask your lawyer.
- Anti-dilution: clauses that protect investors in a down round. Avoid "full ratchet," which punishes founders hardest.
- Board structure: who holds seats and control. Protect founder decision-making early.
- Pro rata rights: lets investors maintain ownership in future rounds. Standard, but giving them to everyone can complicate your Series A.
Real-Talk Founder Tips
Valuation is a negotiation; anchor high enough to show confidence, but stay grounded. Term sheets are like prenups: you don't have to love every clause, but you must understand them. A clean deal beats a high valuation; chasing a $20M cap with toxic terms is a bad trade. And don't negotiate your first term sheet alone; talk to founders who've done it.
A fractional CFO can model your valuation scenarios and walk you through the terms before you sign, and our Entrepreneur Roundtable is a place to get live feedback on a term sheet from other CEOs.
Related Malloy resources
- Your Guide For Fundraising
- Make Your Business Valuation a Priority
- Startup Funding Instruments: Convertible Notes, SAFEs, and Priced Equity Rounds