The venture capital landscape is moving at two completely different speeds right now.
US venture investments surged past the $300 billion mark in 2025, driven heavily by an aggressive concentration of capital into AI mega rounds.
In fact, raises of $1 billion or more accounted for 35% of all VC dollars last year.
But while the headlines focus on massive AI evaluations, the underlying machinery of how these deals are actually structured tells a Different story while joining us to weigh in and discuss how founders can navigate this complex environment is David Sabow, Global Head of Innovation Banking at HSBC.
David, good morning.
Thank you so much for joining us.
So we are almost halfway through 2026 and HSBC Innovation banking just released its 2026 venture term sheet guide.
So beyond just the headline valuation, tell us a little bit about some of the structure.
Terms that founders routinely overlook and how does this data actually put them in a stronger negotiating position?
Yeah.
Sounds good.
Well, thank you so much for having me, Remy, and yeah, it's exactly as you described.
Um, a lot of people talk about the valuations and the size of these financings, which is unbelievable, really, as you said, only the 2nd time in history that we've seen this level of, uh, venture capital deployment.
But beyond the valuations, there's so much more to unpack that ultimately determines not only early investors' success, but also the implication for founders.
And so, our venture term sheet guide, uh, partnered with 7 incredible firms to really review first-party data across 500 financings.
We looked at 50 different data points, and ultimately, the intent of this is to arm founders and company creators.
With the terminology and with ultimately what's happening in the market to help them negotiate the best deal.
So, founders are great at building things, but ultimately, they may not be as conversant with preferred versus common, participating versus non-participating, liquidation preferences, option pool sizing, all these other factors that ultimately go into really making a, a big impact in terms of the ultimate liquidity and, and outcome for your business.
So, Um, we looked at things from converts, we looked at, uh, board participation, dividends, and what we really saw is that despite the headlines of this incredible, uh, venture capital cycle that we're living through, uh, firms and, and transactions are really coalescing around non-participating liquidation preferences, perry-Psu structures.
And broad-based anti-dilution projections, um, with a focus really on weighted average protection rather than full, full ratchet provisions.
So, so despite the fact that we see a lot of variability in, uh, round sizes, we're seeing a lot of consistency in terms of the types of structures, governance, and rights, especially early on in a company's journey.
Yes, and I'm just going to reiterate this because it is pretty surprising that we saw the second highest year in history for BC Hyunda at $300 billion but it is heavily skewed by artificial intelligence, and I also understand that you found that their cap tables and option pools also look surprisingly identical to the rest of the market.
So for the layperson who's watching this, help us understand what's really happening.
Yeah, I mean, this is a really an unprecedented cycle that we're living through.
It's an incredibly exciting time uh to be building companies.
It's incredibly volatile time to be building companies.
But what we saw to your point around kind of venture capital and AI really taking over, AI native companies are nearly 10 times more likely to raise an up round than a down round compared to their non-AI native uh peers.
So, you're seeing an incredible amount of capital and momentum moving in, um, to the AI world, but what we're also seeing is that, um, a smaller percentage of board seats are actually Being taken by these AI native companies.
So, um, when you look at board participation for these early venture capital investors compared to non uh AI native companies, 79% board participation for non-AI native companies compared to 95% and 96% um for AI native companies.
So, really, it's a, it's an area where you're seeing kind of different governance for these later-stage AI companies.
Compared to their non-AI native peers.
Um, if you're a non, uh, AI focused company in traditional software, um, it's incredibly difficult, um, to really differentiate yourself and stand out, but there are some incredible businesses that are mission critical that we think are gonna continue to go on and be very relevant, despite the fact that AI is consuming a lot of the headlines, a lot of the media interviews, and a lot of the capital in the current environment.
And finally, David, before I let you go, I do want to ask you about sector as well as stage because this report does highlight some fascinating nuances depending on stage and sector.
And here on Wall Street when we're looking at sector we're able to see a lot of What's happening below the surface, but when it comes to founders who are navigating specific landmines, especially say deciding on board makeup as well as dividend structures, what would you say might be the smartest way to protect their long-term wealth as well as control?
Yeah, I mean, look, I think everyone talks about the valuations, but really how you structure your option pools, the anti-dilution rights that your early investors have, those are some of the most important things, and I would argue actually every bit as important as the valuation in the headline numbers.
And so really focusing on um not having full ratchet anti-dilution provisions with your early investors.
Um, interestingly, in terms of dividend participation for your early venture capital firms, it's almost fifty-fifty in terms of how many deals have dividends versus those that don't.
So, that's a key area of negotiation for people to focus on.
And in fact, with FinTech, um, from a sector standpoint, we actually saw the highest percentage of deals that did not have dividends, uh, involved.
So those are kind of key considerations for people to think about.
And then, um, of course, thinking about your ability to get liquidity down the road is very, very critical.
So, understanding if your early investors have a right of first refusal, a right of first offer, and what those secondary provisions are that those early venture capital firms are requiring, those are key areas to focus on, especially as you continue to attract and retain talent in this hypercompetitive environment.
Well, David, we will have to leave it there for today, but thank you so much for joining us this morning.
I appreciate your time and thank you so much for all of your insights.
Thanks for having me, Remy.
