What are founder-friendly terms and how do they differ from standard VC terms?

Full Explanation

Founder-friendly terms prioritise founder control and equity preservation: no anti-dilution, limited protective provisions, high liquidation preferences, and restricted investor board seats.

Traditional Series A terms protect investors at founder expense. Founder-friendly terms flip this: investors accept narrower protections to allow founders to retain control and equity. Specific founder-friendly provisions: 1) weighted-average (not full ratchet) anti-dilution, 2) no pay-to-play, 3) protective provisions limited to major events (M&A, liquidation, not salary), 4) single investor on board (not 2-3 investor seats), 5) higher liquidation preferences (e.g., 2x) meaning investors get multiple of their money back first, 6) shorter anti-dilution windows (only apply to down rounds within 18 months). The benefit to founders: fewer investor veto rights, simpler cap tables, easier future fundraising. The benefit to investors: higher returns if successful (1x pref instead of 1x means less downside protection). Founder-friendly terms appeal to angel syndicates and newer funds (Upside, Khosla Ventures, some Sequoia partnerships) who believe founder alignment drives better returns. Traditional institutional VCs (Accel, Bessemer) rarely offer founder-friendly terms because their model depends on minority protection. For founders, founder-friendly terms are valuable, but only if the investor has dry powder for follow-ons — an investor with skin in the game will be more supportive during downturns.

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