Most founders negotiate a term sheet once or twice in their lives, against people who do it every week. That asymmetry is where bad deals come from. Below are the patterns that hurt founders most — what the standard version looks like, what the unfair version costs, and what to do when you see it.
This is education, not legal advice. Before signing anything, hire your own lawyer — one who works for you, paid by you, not one recommended by the investor. For an early-stage financing this costs far less than one bad clause.
standard A 1x non-participating preference: if the company is sold, the investor gets their money back OR their ownership share — whichever is larger, not both.
red flag Multiples ("2x preference") or "participating" stock stack the deck: in a modest exit the investor takes their multiple off the top and then a share of the rest. A $5M sale of a company that raised $2M on a 2x participating preference can leave the people who built it with very little.
what to do Ask for 1x non-participating. It is the market norm at every early stage; an investor who insists otherwise is telling you how the relationship will go.
standard Broad-based weighted-average anti-dilution — a modest adjustment if a later round prices lower.
red flag Full ratchet reprices the investor's entire stake at the lower price of a future down round. One hard year can transfer a large slice of the company from founders and employees to an early investor automatically.
what to do Ask for broad-based weighted average. Most investors agree without argument — it is the standard.
standard An option pool of roughly 10–15%, sized to your actual hiring plan for the next 18–24 months.
red flag A demand for an unusually large pool created BEFORE the investment comes out of the founders' ownership alone — it is a lower valuation wearing a disguise. A "$10M valuation" with a mandatory 25% pre-money pool is not a $10M valuation.
what to do Size the pool from a real hiring plan, not a round number. Negotiate the pool and the valuation together — they are the same negotiation.
standard At pre-seed/seed: founders keep board control, often with one investor seat on a small board.
red flag An investor majority on the board after a small early check means they — not you — can replace the CEO, approve or block a sale, and control every future raise. Ownership percentages don't matter if the board is gone.
what to do Treat board control as more valuable than valuation. A lower price with a founder-controlled board is usually the better deal.
standard The full amount wires at closing.
red flag "$1M — $250k now, the rest on milestones" is not a $1M round; it is $250k with an option for the investor to abandon you. Milestones get renegotiated, markets shift, and the unfunded balance becomes leverage over every decision.
what to do Take the smaller certain amount over the larger conditional one, or negotiate the milestones to be objective and already within reach.
standard Equity investment carries business risk for the investor. Founders never personally guarantee it.
red flag Any request to personally guarantee the investment, pledge personal assets, or accept personal liability for company performance is far outside startup norms — that is a loan shark structure, not venture investment.
what to do Decline, whatever the amount. This one is not a negotiation.
standard Real investors never charge you to pitch. Reputable accelerators take equity transparently on published terms.
red flag Fees to present to an "investor network," retainers to "get you in front of VCs," or finders demanding 5–10% of the round in cash or equity — the people who charge founders are in the business of charging founders, not funding them.
what to do Walk away. Ask any intermediary exactly who they have funded and call those founders.
standard Exclusivity for 30–45 days while the deal closes.
red flag A 90-day or undated no-shop hands the investor your leverage: they can slow down, retrade the price ("we found some concerns"), and negotiate against your shrinking runway while you are forbidden to speak with anyone else.
what to do Cap exclusivity at 30–45 days, with the clock voiding it if they stop actively progressing.
standard Advisors: fractions of a percent (commonly 0.1–0.5%, vesting over time, for real ongoing work).
red flag An "advisor" asking for 2–5% for introductions, or a "strategic partner" wanting equity before delivering anything, is taking a founder-sized slice for a coffee-sized contribution.
what to do Use standard advisor agreements with vesting and a cliff. If the value never shows up, the equity never vests.
Every term used above — liquidation preference, participating preferred, anti-dilution, option pool, no-shop and the rest — is defined plainly in the glossary. Read your term sheet with it open.