Term sheet red flags nobody warns first-time founders about

Founders fixate on the valuation number in a term sheet because it's the headline figure, the one that gets talked about at dinner parties. It's rarely the clause that causes the most damage two years later. That's usually buried three pages in, worded blandly, and skipped past because everyone's excited about the headline number.

The clauses worth slowing down for

• •Liquidation preference stacking — multiple rounds compounding preferences can leave founders with far less than the cap table percentage suggests
• •Broad protective provisions — veto rights over ordinary operating decisions, not just major ones, can quietly hand control away
• •Anti-dilution mechanics — full ratchet versus weighted average makes a real difference in a down round, and most founders never model it out
• •Founder vesting reset clauses — some term sheets quietly restart your own vesting clock on the money you already earned

None of these are inherently predatory — plenty of standard, fair term sheets include some version of each. The problem is founders signing without understanding what each clause does in the specific scenario where things go badly, because that's precisely the scenario nobody wants to picture while they're excited about closing a round.

“Get a lawyer who's read a hundred of these, not your general-purpose company lawyer reading their first one alongside you. The clauses that matter are exactly the ones that look boring.”