Negotiation Strategies for Startups

Lack of transparency in VC puts first time founders at an unfair disadvantage What we do is not that complex, but there are plenty of concepts and terms you need to be familiar with so you can set yourself up for success This is particularly true when it comes to negotiating a term sheet To make things fairer, we've made our term sheet available for anybody to download and review We've also written a guide to take you through all the key terms and explain where tension is likely to arise between founder and fund You can access the term sheet directly below and the guide via the Content section of our website 'Term Sheet Transparency' Any questions? Just ask in the comments below #venturecapital #startups #fundraising #founders #entrepreneur #entrepreneurship #technology #innovation #business #ceo

"If I had these 5 provisions in my term sheet, I'd still be CEO of my $40M ARR company." The founder who was ambushed and fired despite growing his startup to $8M ARR told me this last week. His biggest regret wasn't a missed growth target or a failed product launch. It was signing financing documents that left him completely vulnerable to the board that eventually ousted him. After reviewing 100+ term sheets and witnessing multiple forced CEO transitions, here are some protections every founder should consider negotiating: 1. Super-voting founder shares Create a separate class of shares with 10-20x voting rights that cannot be diluted below a control threshold (typically 50%+1). This ensures you maintain voting control even as your economic ownership decreases. 2. Board seats tied to founder status, not executive role Your board seat should be tied to your status as a founder, not your role as CEO. This prevents the "fire you as CEO, then remove you from the board" double-play that VCs often execute. 3. Employment agreement with teeth Require a supermajority (>75%) board vote for termination, and include a narrow definition of "cause" that prevents subjective removals based on "performance concerns." 4. Protective provisions requiring founder approval Key company decisions (raising capital, M&A, executive hiring) should require your explicit approval, regardless of your role or ownership percentage. Similar to how typical right VC preferred shares obtain. 5. "Good Reason" severance with full acceleration If you're pushed out, trigger substantial severance and immediate vesting of all your equity to make the cost of removal expensive. One founder I advised was told these protections were "not market" during his Series A. His response? "Either I have protection to execute my vision, or you're investing in a different company than you think." The VC firm backed down. He got some of protection on this list. This is not always the case, but if you are in a strong position and can dictate terms you shouldn't hold back. Mark Zuckerberg didn't, neither did Sergey Brin and Larry page. Another founder ignored this advice, believing his investors would never replace him. Eighteen months later, he was out - replaced by a CEO from the lead investor's network. The first company is now unicorn-valued with the founder still at the helm. The second company? Sold for a modest outcome that barely returned investor capital. Often, the companies that create massive value have CEO/Co-Founder who go all the way - from Inception to IPO and beyond (e.g. kudos @chrishulls) If you're raising venture capital, remember: The same VCs promising they "back founders for the long run" could be the ones who will push you out the moment they see a different path to returns. Your term sheet isn't just a document about money. It's the constitution that determines who really controls your company's destiny. #FounderProtection #VentureCapital #TermSheets

Founders - you must be familiar with SAFEs (Simple Agreement for Future Equity) if you're raising early stage money for your startup, period. Why? Because this instrument has come to dominate rounds for nascent companies, even those that raise $4 million or so. 𝗕𝗮𝘀𝗶𝗰𝘀 • With a SAFE, investors give the founders money upfront for the promise of future equity. That future equity arrives with a "qualified financing", usually a priced round.    • SAFEs come in two flavors: pre-money and post-money. The post-money type is much more common (80%+).    • SAFEs have two "conversion terms": valuation caps and discounts. 90% of SAFEs have a valuation cap, about ~33% have a discount. Terms can be used together or separately.    • SAFEs 𝗮𝗿𝗲 𝗻𝗼𝘁 𝗳𝗿𝗲𝗲. They come with implied dilution that the founder needs to track closely, especially since post-money SAFEs give the investor the added benefit of anti-dilution if the founder raises multiple SAFE rounds. 𝗖𝘂𝗿𝗿𝗲𝗻𝘁 𝗠𝗮𝗿𝗸𝗲𝘁 • 85% of angel rounds happen on SAFEs. The rest is convertible notes (like SAFEs, but with an interest rate) and some priced activity.    • More than half of all rounds under $3M raised are on SAFEs.    • A quarter of seed rounds with $5M+ raised happen on SAFEs. 𝗣𝗿𝗼𝘀 • Speed. Signing SAFEs is quick and easy. • Cost. Typically a much lower legal cost than a priced round. • Valuation delayed. No need to decide on an exact valuation for a super early company that may not have product, etc. 𝗖𝗼𝗻𝘀 • Risk of overdilution to founders if multiple SAFE rounds are raised. • Risk (to investors) of never actually owning shares should a priced round never happen. • Risk (to investors) of lack of rights around equity (things that may have been present in a priced round like information rights, pro rata, etc). Fundraise safely! #startups #founders #VC #fundraising #SAFE

🌟 One Offtake Doesn’t Fit All: Introducing the Maslow Pyramid of Offtakes Offtake is the buzzword of 2024. But not all offtakes are created equal. Today, with HV Capital online and live at The Drop, we are introducing the Maslow Pyramid of Offtakes. What I love about Maslow’s Hierarchy of Needs is that it was never proven to be correct, but hey, everyone remembers it because of the simple pyramid logic. Use this framework in the same way. It’s not hardcore science, but it’s a tool to help us all remember and guide us through the journey. Here’s how the pyramid works (bottom up): * Soft Agreements: Non-binding and low-risk, ideal for the Prototype stage (TRL 4-5). Here, you’re focused on proving feasibility—showing your technology works. LOIs and MOUs build early trust without heavy commitments. * Binding Agreements: In the Pilot/Demo phase (TRL 6-7), you need to prove performance and reliability. Binding agreements offer legal certainty for short-term engagements or smaller quantities, that can be tied to conditional milestones to further reduce risks for your offtakers. * Bankable Agreements: The ultimate goal. By the time you reach FOAK and NOAK (TRL 8-9), you must prove the commercial viability and scalability of your technology. Bankable agreements provide long-term cashflow certainty, crucial for securing major capital and scaling. Key takeaways: 
1️⃣ Different stages demand different levels of commitment, maturity and certainty, from early soft agreements to long-term bankable deals. It usually correlates to the level of your tech maturity. 2️⃣ Climb the traction pyramid – Start with low-risk commitments and work your way up to bankable agreements as you deliver on key milestones and build customer relationships and trust. Does this pyramid reflect your own journey? Comment below—I’d love to hear your stories. Cc: Sebastian Heitmann, Sarah B. Söding, Fernanda Bartels, Maxi Pethö-Schramm, Jan Miczaika, Marie Bos, Jannis Fett, Kasey-Leigh Davies

Founders: Protect your equity. VCs have a playbook for valuation that most founders don’t see. Here's a side-by-side look at how they calculate deals differently from you: 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐢𝐨𝐧 Founder: $3M pre-money → $4M post-money, ownership at 75%. VC: Adjusts for 20% pre-funding option pool, "true" pre-money is $2.4M, ownership at 60%. 𝐎𝐩𝐭𝐢𝐨𝐧 𝐏𝐨𝐨𝐥 Founder: Assumes minimal dilution, unaware of VC's pre-funding requirement. VC: Requires a 15–20% option pool pre-funding, lowering founder equity. 𝐋𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐢𝐨𝐧 𝐏𝐫𝐞𝐟𝐞𝐫𝐞𝐧𝐜𝐞𝐬 Founder: Expects investors to get their money back first in a sale. VC: Adds 2x–3x participating preferred, reducing founder payout on smaller exits. 𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐒𝐭𝐨𝐜𝐤 𝐓𝐞𝐫𝐦𝐬 Founder: May misunderstand or overlook participating preferred terms. VC: Uses these terms to protect downside and boost returns on smaller exits. 𝐍𝐞𝐠𝐨𝐭𝐢𝐚𝐭𝐢𝐨𝐧 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐲 Founder: Accepts terms quickly due to urgency or lack of knowledge. VC: Structures terms to maximize returns while appearing founder-friendly. 𝐏𝐫𝐞-𝐌𝐨𝐧𝐞𝐲 𝐯𝐬. 𝐏𝐨𝐬𝐭-𝐌𝐨𝐧𝐞𝐲 Founder: Sees valuation as pre-money + capital raised. VC: Adjusts pre-money valuation after factoring in option pool. 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐀𝐧𝐜𝐡𝐨𝐫𝐢𝐧𝐠 Founder: Focuses on high headline valuation to minimize dilution. VC: Frames discussions around ownership percentages and post-money equity. 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐌𝐮𝐥𝐭𝐢𝐩𝐥𝐞𝐬 Founder: Uses optimistic projections or market comparables. VC: Applies conservative revenue multiples based on sector benchmarks. 𝐅𝐮𝐭𝐮𝐫𝐞 𝐃𝐢𝐥𝐮𝐭𝐢𝐨𝐧 𝐂𝐨𝐧𝐬𝐢𝐝𝐞𝐫𝐚𝐭𝐢𝐨𝐧𝐬 Founder: Overlooks dilution from future funding rounds. VC: Models dilution across rounds to maintain target ownership. 𝐂𝐚𝐩 𝐓𝐚𝐛𝐥𝐞 𝐈𝐦𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬 Founder: Doesn’t assess long-term cap table dynamics beyond the current round. VC: Models impact on employee options, pro rata rights, and founder equity. Learn the math. Master the terms. Protect your stake. Follow EverythingStartups for more! And subscribe to my weekly newsletter for startup & VC visionaries: https://lnkd.in/eYjevD5Z #startups #VC #venturecapital #founders #funding #startupevaluation #fundraising

Valuation gets the headlines. But term sheet terms often determine the final outcome. I had the pleasure of contributing to Sifted article with Francisco V.h Francisco V., cofounder and CEO of geoSurge, for the founder perspective about what term sheets are telling us about the UK venture market in 2026 — and what founders should weigh before signing one. We're seeing a “barbell market” strong appetite for early-stage companies at one end, larger rounds for proven high-growth businesses at the other — and tighter terms for much of the middle. Larger deals (>£10m) now represent 31% of terms sheets, up from 26% in 2024. AI and deeptech founders are often able to command premium valuations and more founder-friendly terms. Francisco closed a $12m seed into what he called "an insane amount of interest" — and that competition with multiple term sheets gets you a better deal. A few things for founders 👇 👉 Don’t fixate on the headline number. A high valuation often comes with structure attached — a liquidation preference that decides who gets paid first on exit. A fair valuation with a simple structure usually produces a better long-term outcome. 👉 Know every control right before you sign. Watch for aggressive provisions like swamping rights — enhanced investor voting or board dominance triggered if you miss budget or hit distress. Don't go in blind. 👉 Read protections carefully — drag-along thresholds, no-shop periods and vesting. Small print, big consequences if things don't go to plan. 👉 Understand the investors model. Traditional VC, EIS and VCT investors carry different return objectives and risk appetites — and that shapes the terms they offer.  That capital is critical to the UK ecosystem — converting private savings into productive risk capital for the next generation of companies. But different investors have different return models, which can influence reporting requirements, consent rights, fees and other terms Ultimately, the valuation that really matters is the one at exit. The best deal aligns founders and investors — and still works when circumstances don't. Read the full article here 👇 https://lnkd.in/ekRN5TwW #VentureCapital #TermSheets #Founders #Startups #DeepTech #AI Lauren Lara

I met two founders recently. No product, no revenue, but raising money at $40M valuation! They were super confident that they are building the Next Big Thing. And honestly, I love that energy. Every founder should believe they’ll defy the odds. But then we got into the details… The CEO said they were planning to raise $2 million for 5% of the company I asked, “Why do you think investors will agree to this?” The CEO said, “Because we’ll be worth $1 billion one day.” That’s where it fell apart for me. 🚩🚩 Confidence is great. But early stage valuation isn’t decided by dreams. It’s decided by how much money you need and how much equity investors expect. So I shared a simple framework with them to think about early stage valuations: 1. Raise for 18 months - 12 months to hit your milestones for the next fundraising round 3-6 months to close your next round 2. Calculate how much money you’ll need - Add up team salaries, product, marketing, and anything else you’ll spend money on for 18 months 3. Expect to give 10-20% equity - That’s the range most early stage investors will be looking for. Based on how much you’re raising, this will give you your valuation. For example: If you need $300K for 18 months and offer 15% equity, your valuation = $300K ÷ 15% = $2M Simple. Practical. Investor friendly. Because in the end, confidence sells the dream. But numbers close the deal. #HarshRealities

This is one that seldom gets talked about but most investors within a VC fund work pretty autonomously, they'll be your main point of contact and you won't see many other people frequently. Most people think if they get that person on side it's all downhill from there but it isn't that easy. Most VCs invest into sub-1% of the opportunities they see and it's often a high volume game so alongside the question of do they love your business and think it can be a [10x/20x/100x] returner they're also asking the question of how will others in the fund think about it and how easy of a deal is it to get done. As a founder, you can't mitigate for different tastes and preferences from others within the fund that you don't meet but you absolutely can make your point of contact's life a lot easier by providing as much information as possible. A comprehensive data room with facts and data that backs up everything that's in the pitch deck is a great start. Speedy responses on any follow up questions also helps. Keeping everything simple goes a long way too as the easier and more granular you can break down what you do the easier it is going to be for your point person to then relay that story internally. You have to find ways to make them your biggest advocate and equip them with all the ammunition they need to push back any challenges when you aren't in the room. I've seen so many great businesses not get funding. There can be an array of reasons why something ends up in the too difficult pile. A couple of examples are: 1️⃣ Broken Cap Table: Poor terms from early investors, incubators and universities and/or co-founder fallouts with poor vesting terms can leave your cap table with a big slug of zombie equity which could be a deal breaker. 2️⃣ Crazy Preference Structures: Most proper VCs want to be working with founders that are highly incentivised throughout the whole journey. A couple of early rounds with preference shares can absolutely kill that dynamic. Some VCs might re-negotiate with your existing investors to squash the pref stack but, if it's a more marginal case, others might just move onto another deal. 3️⃣ Messy Legal Docs: The list for this one is too long to call out individually but whether it be IP, investment docs, employment terms, etc. a messy hole in your legals can put an investor off. Sometimes you'll get lucky, none of the above are 100% deal breakers for everyone, but they can be for some. The smoother you can make the ride the more likely it is you'll be successful with a speedy fundraising process. _____________________________________ 💭 Agree? Disagree? Let me know in the comments. 🔔 Want to see more? Follow: Kiran Mehta. ♻ Useful for your network too? Hit that repost button!

Founders don’t get confused when discussing Valuation and ESOPs. When a VC says they will invest at $10mn pre-money, it means $10mn inclusive of any ESOP the startup will be setting aside for future employees. If you are setting aside 20% (generally it ranges from 10%-20%) of your stock for future issuance under an ESOP, this means the real & effective pre-money valuation your VC is offering you is $8mn, not $10mn. So including the Option Pool lowers the Pre-money valuation. But if you are looking for a $10 mn valuation not inclusive of the ESOP, you will need to negotiate a higher pre-money valuation, which in this case would be $12.5mn. Example of Valuation, Option Pool, and Dilution: Let’s say the Pre-money valuation of the company is = $4mn - Investor Investing = $1mn - Post-money Valuation= $5mn - Investor’s Equity= $1mn/ $5mn= 20% - Founders Equity= 80% (but this is not the case if the option pool is there) Let's say that the VC's term sheet says that a 15% "fully diluted post-money" option pool needs to be in the pre-money valuation. - Option Pool is 15% of $5mn= $ 750,000 - Effective Pre-money valuation of the company= $4mn- $750,000= $3.25mn - Share Price will depend on this $3.25mn Pre-money valuation, not $4mn So this $1mn financing was not 20% Dilutive, it was 20%+15%= 35% Dilutive which will leave the Founder with 100%-35%= 65% Equity Creating Option Pool from a Hiring Plan: - CEO- 5%-10% - COO- 2%-5% - VP- 1%-2% - Independent Board Member- 1% - Other Employees- 1% A Founder should determine the size of the Option Pool. If the Option Pool size is small then they should justify it. The focus should be on increasing the share price and increasing the Effective Valuation. Image Source: Angel List ~~~~~ ♻️ Found this helpful? Repost it so your network can learn from it, too. And follow me, Fazlur Shah for more content like this. #startups #entrepreneurship #venturecapital #investing #finance

10 Legal Docs That Can Save Your Startup Before It Even Makes a Sale Most startups don’t fail because of competition. They fail when things go wrong between co-founders, with investors, or with the law. No matter how promising your idea is or how fast you’re building, if your legal foundation is weak, everything can collapse. If you're starting up in 2025 or already running a business, these 10 legal documents are not just good-to-have. They are must-haves. Let’s break them down: 🔹 Founders Agreement Defines roles, responsibilities, equity split, and decision-making power. Many founders delay this conversation until it’s too late. But this one agreement can prevent years of internal conflict. Start aligned. Stay aligned. 🔹 Incorporation Documents MOA, AOA, and government filings establish your startup's legal identity. Without incorporation, you can’t raise funds, sign contracts, or open a business bank account. Your startup isn’t real until this is done. 🔹 NDA (Non-Disclosure Agreement) Before you pitch, hire, or even brainstorm with a third party, protect your idea. An NDA ensures your innovation is respected, even if the other party walks away. 🔹 Employment Contracts Set clear terms with your team. Define roles, compensation, IP ownership, notice periods, and termination clauses. Without this clarity, even the best hires can become the biggest legal risks. 🔹 IP Assignment Agreement Every product, every line of code, every design, your company must legally own what it builds. If a team member leaves without this in place, your core product IP might go with them. 🔹 Shareholders Agreement Details how equity is managed, what rights investors have, and what happens during exits or future funding rounds. This ensures that decisions are made fairly, not emotionally. 🔹 Terms of Service Whether you are building a platform, app, or tool, this document outlines how your product should be used and what liabilities you should avoid. It protects your business and sets clear expectations for users. 🔹 Privacy Policy Especially in a world with rising data regulations like GDPR, this is non-negotiable. It explains how you collect, store, and use user data and builds trust in your brand. 🔹 Co-founder Exit Clause Not all partnerships last forever. If one founder wants to leave, this clause prevents confusion over equity, roles, or intellectual property. Plan the breakup before it happens. 🔹 Investment Agreements Raising funds? You need clear paperwork on valuation, equity, rights, and expectations. Every handshake must turn into a contract. Misunderstandings here can cost you your company. #startups #entrepreneurship #founders #businessstrategy #legal