Series Seed Preferred Stock — Summary of Terms
Non-binding term sheet for discussion purposes only — based on Gurpreet S. Bal's standard Series Seed framework · Full annotated version at gurpreetbal.com
Term Sheet — Not a Binding Agreement
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1. Offering Terms & Option Pool 2. Converting Instruments 3. Dividends 4. Liquidation Preference 5. Conversion 6. Anti-Dilution 7. Board of Directors 8. Protective Provisions 9. Information & Pro-Rata Rights 10. Other Terms
01Offering Terms & Option Pool
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The Option Pool Shuffle
Why investors want a pre-money pool — and exactly what it costs founders
HeyGen · ~90 sec
Security
Series Seed Preferred Stock of [Company] (the "Series Seed Preferred")
Aggregate Proceeds
(the "Investment Amount"), inclusive of all converting instruments described in Section 2.
Pre-Money Valuation
(the "Pre-Money Valuation"), inclusive of the option pool increase described below.
💬 What this means
The pre-money valuation is set after the option pool is expanded to the target size. This means the option pool dilution hits founders before the investor's shares are priced — effectively reducing the per-share price the investor pays. This is called the "option pool shuffle." Always model the cap table both ways before agreeing to a pre-money figure.
Price Per Share
The Pre-Money Valuation divided by the Company's fully diluted capitalization immediately prior to the closing (post option pool increase), including all shares reserved under the Option Plan (the "Original Issue Price").
Option Pool
Prior to the closing, the Company shall increase its equity incentive pool such that the available, unallocated options reserved under the Company's stock option plan shall equal 10% of the Company's fully diluted post-closing capitalization (the "Option Plan"). This pool increase is included in the pre-money calculation.
💬 Negotiating the pool
10% post-money is the most common seed-stage target. Investors want a large pool pre-money so the dilution hits the founders' side of the ledger before pricing. Founders should push to size the pool based on an agreed hiring plan — not an arbitrary percentage. A hiring plan that only requires 7% means you can argue the pool should be 7%, saving real dilution. See the proforma to model the impact.
Practitioner note: Most VCs will accept a smaller pre-money pool if you come with a specific 18-month hiring plan that justifies a lower number. The pool fight is worth having. Most founders don't have it.
02Converting Instruments
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SAFE & Note Conversion Mechanics
Cap vs. discount, which is better for investors, and what accrued interest actually costs
HeyGen · ~2 min
Y Combinator SAFE
Outstanding Y Combinator Post-Money SAFE(s) shall convert into shares of Series Seed Preferred at the closing at a price per share equal to the lesser of: (i) the SAFE valuation cap divided by the Company's fully diluted capitalization (post option pool, pre-financing); or (ii) the Original Issue Price multiplied by (1 minus the applicable discount rate), if any. YC SAFEs with no discount convert solely on the cap.
💬 YC post-money vs. pre-money SAFE
YC's current standard is the post-money SAFE. Under a post-money SAFE, the investor's ownership percentage is fixed at signing (investment ÷ cap). This is cleaner for investors but can be more dilutive for founders than a pre-money SAFE when multiple SAFEs stack. If you issued a pre-money SAFE, confirm which version you used — the conversion math is different.
Convertible Note(s)
Outstanding convertible note(s) shall convert at the closing. The converting amount equals the outstanding principal plus all accrued and unpaid interest as of the closing date. The conversion price shall be the lesser of: (i) the note's valuation cap divided by the Company's fully diluted capitalization (post option pool, pre-financing); or (ii) the Original Issue Price multiplied by (1 minus the applicable discount rate). Notes convert into shares of Series Seed Preferred.
💬 Accrued interest adds up
A $250,000 note at 6% outstanding for 20 months converts as approximately $275,000 of equity. Multiply that across several notes with different rates and closing dates and the accrued interest can represent meaningful additional dilution that founders didn't model when the notes were issued. Run the proforma with your actual note terms before closing.
No Separate Series
Converting SAFEs and notes shall receive the same series of Series Seed Preferred as the lead investor, with identical rights, preferences, and privileges. No separate shadow series.
03Dividends
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Dividends
Non-cumulative dividends on Series Seed Preferred shall accrue at the rate of 8% per annum on the Original Issue Price, payable only when, as, and if declared by the Board of Directors. Series Seed Preferred shall also participate in any dividends paid on Common Stock on an as-converted basis.
💬 Why dividends rarely matter at seed
Non-cumulative dividends are largely ceremonial at the seed stage — they only matter if the board declares them, which almost never happens in a growth-stage startup. The more important dividend question arises in later rounds where investors may push for cumulative dividends that compound and increase liquidation preference over time. At Series Seed, non-cumulative is the right answer and is easy to get.
04Liquidation Preference
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Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company, or a deemed liquidation event (as defined below), holders of Series Seed Preferred shall be entitled to receive, prior to any distribution to holders of Common Stock, an amount equal to the Original Issue Price plus all declared but unpaid dividends (the "Liquidation Preference"). This is a 1x non-participating liquidation preference.
💬 1x non-participating is founder-friendly — here's why it matters
Non-participating means once the preferred gets its 1x back, it doesn't also participate in the remaining proceeds alongside common. The preferred holder chooses: take the 1x, or convert to common and share pro-rata. At low exit valuations, preferred takes the 1x. At high valuations, preferred converts and shares. This is the standard at seed and Series A.

Participating preferred (sometimes called "double-dipping") means the preferred gets its 1x and also participates in remaining proceeds as if converted. This is much worse for founders and should be resisted at seed stage. If an investor pushes for participating preferred at seed, push back.
Deemed Liquidation
A merger, acquisition, or sale of substantially all assets in which the Company's stockholders do not retain a majority of the voting power of the surviving entity shall constitute a deemed liquidation event, unless waived by the requisite holders of Series Seed Preferred.
05Conversion
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Voluntary Conversion
Each share of Series Seed Preferred shall be convertible into Common Stock at the option of the holder, at any time, at the then-applicable conversion rate (initially 1:1, subject to adjustment).
Mandatory Conversion
All shares of Series Seed Preferred shall automatically convert into Common Stock upon: (i) the closing of a firmly underwritten public offering at a price per share of at least the Original Issue Price with aggregate gross proceeds to the Company of at least ; or (ii) the written consent or election of the holders of a majority of the then outstanding Series Seed Preferred.
💬 IPO conversion threshold
The mandatory IPO conversion threshold is negotiable. Investors want a higher bar (3x or more) to ensure they don't convert into common at an IPO that undervalues them. Founders want a lower bar for clean governance at IPO. Standard market is 3x the issue price with a $15-50M minimum gross proceeds test depending on company stage. The key is that the threshold should be realistic given your company's trajectory.
06Anti-Dilution Protection
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Anti-Dilution
Broad-based weighted average anti-dilution protection, applied in the event the Company issues new shares at a price below the then-applicable conversion price. The broad-based formula includes all outstanding shares, all options and warrants (whether or not exercised), all convertible securities, and all shares reserved for issuance under the Option Plan.
💬 Broad-based vs. narrow-based vs. full ratchet
Anti-dilution adjusts the conversion price downward if the company later issues shares at a lower price (a "down round"). Three variants:

Full ratchet: the conversion price drops to the new low price. Most investor-favorable, most punitive for founders and employees. Avoid at all costs.

Narrow-based weighted average: averages in fewer shares. More favorable to investors than broad-based.

Broad-based weighted average: the standard, most founder-friendly formula that accounts for all outstanding shares. This is what you want.
Carve-Outs
Anti-dilution shall not apply to standard excluded issuances, including: shares or options issued under the Option Plan; shares issued upon conversion of SAFEs, notes, or other convertible securities outstanding as of the closing; shares issued in connection with strategic transactions, acquisitions, or licensing approved by the Board; and shares issued in connection with equipment financing or similar transactions.
07Board of Directors
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Board Composition: The Most Important Governance Decision
Who controls the board controls the company — what founders need to understand before signing
HeyGen · ~2 min
Board Size
Three (3) members at closing, expandable by Board resolution.
Director 1 — CEO
One (1) director designated by the Chief Executive Officer of the Company, elected by all holders of Common Stock voting as a single class.
💬 Why all common votes for this seat
Some term sheets create a separate class of Common Stock that only service-providing founders can vote for director elections. This structure can disenfranchise early investors, angels, and non-founding employees who hold common stock but are not currently providing services. This term sheet intentionally rejects that approach. All common stockholders — founders, early hires, angels — vote as a single class for each common director seat. The CEO designates their candidate; the vote confirms it.
Director 2 — Common Elected
One (1) director elected by all holders of Common Stock voting as a single class, with no designation right.
💬 The independent common-elected seat
This seat is elected by all common holders with no pre-selected candidate. At the seed stage, this is often filled by a founder, a respected advisor, or an independent director the team selects. The key distinction from "lead founder designates" language is that any common holder can nominate and vote — preserving broader governance participation as the cap table evolves.
Director 3 — Investor
One (1) director elected by the holders of Series Seed Preferred, voting as a separate class. [Note: At very early seed rounds, parties may agree to a 2-person board or an observer right in lieu of a full board seat — address in negotiation based on investor's typical practice.]
Important: This term sheet does not include a "services-only" common director class. All common stockholders vote for all common-elected director seats, regardless of whether they are currently providing services to the Company. Founders who want to limit voting rights to active service providers should obtain separate counsel on the governance and legal implications of that structure before implementing it.
08Protective Provisions (Preferred Voting Rights)
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Protective Provisions Explained
What each provision actually protects — and which ones founders should negotiate hardest on
HeyGen · ~3 min
Scope note: These provisions require the separate vote of holders of a majority of Series Seed Preferred. At early seed stages, or where the investor is an operator, founder, or strategic partner who requires closer operational flexibility, the scope of these provisions should be adjusted in negotiation. Full NVCA-style protections are most appropriate where the investor is a professional VC fund with standard portfolio governance expectations. These provisions are not "standard" for all situations — they are a starting point.

The following require approval of a majority of Series Seed Preferred, voting as a separate class:

  • ✦
    Liquidation / Dissolution. Any liquidation, dissolution, or winding up of the Company, or any deemed liquidation event. 💬
    Standard. Prevents founders from triggering a sale or wind-down without investor consent. Every investor will require this.
  • ✦
    Amend Charter or Bylaws. Any amendment, restatement, or modification of the Certificate of Incorporation or Bylaws that adversely affects the rights, preferences, or privileges of Series Seed Preferred. 💬
    Standard. Protects the economic and governance terms the investor negotiated from being unilaterally changed.
  • ✦
    Create New Senior or Pari Passu Stock. Authorization or issuance of any equity security senior to or on parity with Series Seed Preferred as to liquidation preference, dividend rights, or voting. 💬
    Standard. Prevents a future round from structuring itself ahead of the seed investor without their consent. Future Series A investors will want similar protection.
  • ✦
    Increase Authorized Shares. Any increase or decrease in the authorized number of shares of Common Stock or Preferred Stock, other than increases approved by the Board in connection with the Option Plan. 💬
    Standard. Prevents dilutive charter amendments without investor visibility. Option pool increases approved by the full board are typically carved out.
  • ✦
    Redemption. Any redemption or repurchase of Common Stock (other than repurchases from employees, consultants, or directors upon termination pursuant to contractual rights at cost or fair market value, approved by the Board). 💬
    Standard carve-out language. The buyback of founder shares pursuant to standard repurchase rights (vesting, bad leaver) does not require preferred approval. Large founder buyouts or special distributions do.
  • ✦
    Dividends. Declaration or payment of any dividend on Common Stock. 💬
    Standard. Prevents founders from paying themselves dividends that reduce company value ahead of a liquidation preference.
  • ✦
    Change in Number of Directors. Any increase or decrease in the authorized number of directors beyond the agreed board size.
  • ✦
    Affiliate Transactions. Any transaction between the Company and any affiliate, director, officer, or major stockholder (>5%) on non-arm's-length terms, not approved by a disinterested majority of the Board. 💬
    Investor-protective. Prevents founders from extracting value through related-party transactions without investor visibility. Often expanded at Series A to capture a broader set of transactions.
Not included — by design: This term sheet does not include protective provisions requiring preferred approval for: (i) annual budgets or operating plans; (ii) ordinary course capital expenditures below a threshold; (iii) hiring or compensation decisions for officers below the C-suite; or (iv) entry into commercial contracts in the ordinary course of business. These are appropriate for later-stage financings with institutional governance but create operational friction at the seed stage that is rarely in the company's interest. Negotiate their exclusion or set high materiality thresholds.
09Information Rights & Pro-Rata
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Information Rights
Holders of Series Seed Preferred holding at least of the Company's outstanding shares (on an as-converted basis) shall receive: (i) annual unaudited financial statements within 90 days of fiscal year end; (ii) monthly unaudited financial statements within 30 days of each month end; and (iii) prompt notice of material developments. Information rights terminate upon an IPO.
💬 Set a meaningful threshold
A 1% threshold is standard and prevents de minimis investors from receiving sensitive financial information. As the cap table grows across rounds, this threshold can be adjusted upward. At IPO, all stockholders receive public company disclosures and these contractual rights terminate.
Pro-Rata Rights
Holders of Series Seed Preferred holding at least (on an as-converted basis) shall have the right to purchase their pro-rata share of future equity financings, calculated on a fully diluted basis, subject to customary exclusions. Pro-rata rights are non-transferable and expire 10 business days after receipt of notice.
💬 Pro-rata rights at seed
Pro-rata rights allow seed investors to maintain their ownership percentage in future rounds. For large institutional seed funds this is a key right. For angels and small investors, it can create logistical friction at later rounds when new lead investors want clean caps. Consider whether to grant pro-rata to all Series Seed holders or to impose a minimum threshold that filters out small checks.
10Other Terms
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Legal Opinion
No legal opinion required. The Company shall not be required to deliver a legal opinion of counsel as a condition to closing.
💬 Why no opinion
Legal opinions at seed financings add cost and delay for no meaningful protection — the representations and warranties in the purchase agreement cover the same ground. Sophisticated seed investors do not require opinions. If an investor insists on a legal opinion at seed, it is a signal about their deal experience and the friction their future involvement may create. Decline it or limit it to a narrow authorization opinion only.
No-Shop
For a period of days following execution of this term sheet, the Company and its officers and directors shall not solicit, encourage, or engage in discussions with any other party regarding a competing financing or acquisition transaction.
Expenses
The Company shall reimburse the lead investor's reasonable legal fees and expenses at closing, not to exceed . Each party is otherwise responsible for its own fees and expenses.
💬 Keep the cap tight
$10,000–$20,000 is market for seed rounds. If the investor's counsel runs up a large bill on a seed deal, that is usually a sign of the wrong counsel for this stage. Cap the reimbursement firmly in the term sheet — not in the definitive documents where it often gets quietly increased.
Drag-Along
Holders of Series Seed Preferred and Common Stock shall agree to vote in favor of any acquisition or deemed liquidation event approved by: (i) the Board; (ii) a majority of the Series Seed Preferred; and (iii) a majority of the Common Stock. All three consents required.
💬 The three-part drag-along
Requiring all three groups (Board + majority preferred + majority common) is the most balanced drag-along structure and has been the NVCA standard since 2014. It prevents a situation where investors and the board can force a sale over the objection of a majority of the founders and early team. Never agree to a drag that can be triggered by preferred alone without common consent.
Governing Law
Delaware. The Company shall be or shall reincorporate as a Delaware C Corporation prior to closing.
Expiration
This term sheet expires if definitive documents are not executed within days of the date of this term sheet.
📊 Series Seed Cap Table Proforma
Excel model with SAFE & note conversion mechanics, option pool shuffle, and post-money ownership. Yellow cells = your inputs. All formulas show their work.
Download (.xlsx)
This term sheet is a summary of proposed terms for discussion purposes only. It does not constitute a binding agreement or commitment to invest. A binding commitment will only arise upon execution of definitive transaction documents. This document does not constitute legal advice. Consult qualified counsel before signing any financing documents.