Negotiate like a Ninja !!
Most founders negotiate 3 clauses in a term sheet.There are over 100.
Here are 5 that quietly kill founder ownership.
- Full ratchet anti-dilution:
You raised at a $10M valuation. Your next round comes in at $5M. A full ratchet resets the investor's price per share to the lower round. Not just on new shares. On their entire holding.
Your 25% ownership can drop to 12% from one clause.
What to do: push for weighted average anti-dilution instead. It still protects the investor but doesn't punish you as hard in a down round.
- Participating preferred:
The investor gets their money back first. Then they also take a cut of what's left. This is called double-dipping.
On a $15M exit with $5M invested at 2x participation, the investor walks away with the majority.
What to do: ask for non-participating preferred, or negotiate a cap on participation. Something like 3x total return, then it converts to ordinary.
- Board consent rights:
You think you're running the company. But if the investor has veto rights over hiring, budget approval, and strategy changes, you're not leading. You're asking for permission.
What to do: keep the consent list tight. Standard items like new share issues and acquisitions are fair. Veto rights over day-to-day operations are not.
- Pre-money option pool expansion:
The investor wants a 20% option pool created before the round closes. Sounds standard. But that pool comes out of your ownership, not theirs.
A 20% pool on a $5M pre-money valuation means you're effectively raising at $4M.
What to do: only create the pool your 18-month hiring plan actually needs. If you need 12%, don't agree to 20%.
- Redemption rights:
If there's no exit within 5 years, the investor can force the company to buy back their shares. If the company can't afford it, the investor may gain enhanced voting rights or board control.
What to do: push the redemption timeline as far out as possible. And check whether your jurisdiction even allows it. In some countries, the company has to pass a solvency test before it can redeem.
None of these are unusual. They show up in most pre-seed to Series A term sheets.
The difference between founders who get fair deals and those who don't isn't intelligence. It's preparation.
Before your next raise, try this.
Pull up any term sheet and count how many clauses you can actually explain to someone else. Not recognize. Explain. That gap is where you lose leverage.
The infographic below covers 22 key term sheet clauses (credit: Alejandro Cremades). I also put together a glossary covering 140+ terms with definitions and founder use cases. Link is in my bio if it's useful.
