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Dear SaaStr: What Does a ‘Ratchet’ Mean in a VC Term Sheet?
- A ratchet in a VC term sheet refers to a price adjustment clause based on future financing rounds.
- In early-stage investing, ratchets are considered rare and non-standard in Silicon Valley.
- The impact of ratchets varies based on the stage of the investment.
- In later stages, ratchets can be seen as a way to agree on a valuation with an adjustment option based on future performance.
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