What the documents say.
WHAT TO EXAMINE
How much, at what valuation What class of shares Liquidation preference Board composition What decisions require investor consent Anti-dilution provisions Founder vesting Information rights What happens on a sale
WHAT LIQUIDATION PREFERENCE DOES
Determines who is paid first in a sale, and how much.
WHY IT MATTERS ENORMOUSLY
It can mean founders receive nothing in a modest sale despite holding shares.
WHAT TO ESTABLISH
Whether it is a simple return of capital or a multiple, and whether it participates further.
WHAT CONSENT PROVISIONS DO
Require investor approval for defined decisions.
WHAT THEY TYPICALLY COVER
Raising more money Selling the business Major expenditure Changing the business materially
WHAT TO CHECK
Whether ordinary operating decisions are caught.
WHY
Requiring consent to routine matters is unworkable.
WHAT FOUNDER VESTING MEANS
Founders earning their own shares over time.
WHY INVESTORS REQUIRE IT
A founder leaving early should not retain full ownership.
WHY IT IS REASONABLE
It protects the remaining founders as much as the investor.
WHAT ANTI-DILUTION PROVISIONS DO
Protect investors if a later round is at a lower valuation.
WHAT THAT COSTS
Founders, substantially, in that event.
WHAT TO NEGOTIATE
Economics and control, not only valuation.
WHAT TO NEVER DO
Sign without independent legal advice.
