Decoding the Healthcare Tech Term Sheet: A Practical Guide to Understanding the Money Behind the Medicine

Oct 28, 2025

∙ Paid

Disclaimer: The views and opinions expressed in this essay are solely my own and do not reflect the positions, strategies, or opinions of my employer or any affiliated organizations.

Abstract

This essay provides a comprehensive exploration of term sheet mechanics for healthcare technology investments, examining the critical components that define the relationship between founders and investors. The abstract outlines the key areas covered: valuation methodologies specific to health tech companies, including both traditional and SAFE note structures; preference stack architecture and its implications for exit scenarios; pro rata rights and their strategic importance; anti-dilution provisions and their mathematical impact on ownership; and the interplay between governance terms and operational control. The essay draws on specific examples from recent healthcare technology financings to illustrate how seemingly minor term sheet provisions can create major downstream consequences for both founders and investors. Special attention is paid to health tech-specific considerations, including regulatory risk allocation, data security provisions, and customer concentration clauses that differentiate these deals from standard software investments.

I. Introduction: Why Term Sheets Matter More in Healthcare Technology

II. Valuation Mechanisms: Caps, Discounts, and the SAFE Note Evolution

III. Preference Stacks: Understanding the Liquidation Waterfall

IV. Anti-Dilution Protection: Full Ratchet versus Weighted Average

V. Pro Rata Rights and the Signaling Game

VI. Control Provisions: Board Composition and Protective Covenants

VII. Healthcare-Specific Terms: Regulatory Contingencies and Data Provisions

VIII. Case Studies: When Terms Drive Outcomes

IX. Conclusion: Building Alignment Through Thoughtful Negotiation