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“A businessman opening a business newspaper” by Olu Eletu on Unsplash

Series A = Wealth vs. Control

We wanted to offer you a new way at looking at Series A term sheets. Series A is about either wealth maximization or control maximization. A good term sheet is a balance of wealth and control maximization provisions. You can figure out your relationship with your prospective investor based on the what the term sheet offers you. We are listing below some standard control and wealth maximization term that you don’t get sticker shock.

Liquidation Preference

The ultimate wealth maximization tool is the liquidation preference, which dictates how money is divided at exit between investors and founders. If your investor is offering you a non-participating liquidation preference it means he is a wealth maximizer and is interested in getting rich. Non-participating liquidation preference means the investor will only get paid once. Most likely there will be cake also for you. If your term sheet has a participating liquidation preference this means the investor gets paid twice at exit. This will leave you with less cash and your investor is signalizing that he is an uber wealth maximizer. We rarely see participating liquidation preferences in the market these days at Series A. As founder you should care about this.


Anti-dilution is a standard VC tool to protect to value of the round. In a nutshell if there is a down round investors gets more shares. If you are a series A founder you should care because you have to issue more shares and be diluted. In the term sheet you want to get the weighted average formula. If your investor insists on full ratchet that should be signal that he has lack of experience in series A financing or is trying to take advantage of you. Caveat top tier EU and biotech VCs love full ratchet.

Protective provisions

This is the mother of all control terms. West coast VC are light on the amount of veto rights they have. The longer the list the higher probability you are dealing with an east coast VC or top tier EU VC (German). Protective provisions are standard control mechanisms and there is no need to fight over them.

Information rights

The wealth maximizers just want basic rights, while the control maximizers have a shopping list of information rights. Again, geography here is important too. West coast funds are happy go lucky and don’t stress these. East coast and top tier EU funds on the other hand care a lot and have extensive provisions.


When people hear about a drag along they think this is some form an STD. Wrong it control and wealth maximization mechanism for VCs.Drag-along means that the majority of investors with the majority of founders can force a sale of the company.

ROFR and Co Sale Tag-along

ROFR gives the investor the right to purchase your shares if you want to sell. Co-sale gives the right to sell his shares with you. This is a wealth maximization tool, which is pretty standard and you should expect this from Sandhill Road to Silicon Alley in Berlin. Wealth maximization at its best and as they say sharing is caring.

Law firm specializing in startups, series A and US expansion. No legal advice I No attorney client relationship I Attorney advertising

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