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Guides
Insights
Letters of Intent (LOIs): What Founders Need to Know Before the Deal
Startups often move fast - but when you're courting investors, buyers, or major customers, you need to slow down just long enough to sign a Letter of Intent (LOI). It’s not a binding contract (usually), but it lays the groundwork for one - and sets the tone for the entire deal.
SaaS Agreements Demystified: Legal Must-Knows for Software Startups
If your startup delivers software in the cloud, your SaaS Agreement isn’t just legal fine print - it’s the foundation of your customer relationships. The terms you set now will define your revenue model, limit your risks, and help you scale into larger deals.
Licensing Agreements for Startups: Turning Your IP into Revenue
Licensing your intellectual property - whether it’s code, brand, or content - can be a smart way to scale without manufacturing or selling yourself. But founders need to tread carefully: Licensing Agreements involve handing over rights to your most valuable asset.
Expanding Your Reach: What Startup Founders Should Know About Distribution Agreements
If your startup sells physical products or software, you may eventually need help reaching customers in new markets. A distribution agreement can be a powerful way to expand without building a large internal sales team.
FAQs
Open allDo drag-along rights apply to founders?
Yes, they typically bind all shareholders—including founders, employees, and option holders - unless carve-outs are negotiated.
Why do investors want drag-along rights?
Investors use drag-along rights to ensure that all shareholders participate in a sale, avoiding minority holdouts that could block or delay an exit.
Can anti-dilution rights be negotiated?
Yes. Founders can push for broad-based weighted average terms, carve-outs for employee equity, or even conditional waivers to maintain alignment with investors.
Why is full ratchet considered founder-unfriendly?
Because it resets the conversion price to the lowest new share price, which can drastically dilute founders and employees even if only a small down round occurs.
What is the most common anti-dilution protection?
The broad-based weighted average formula is the market standard, striking a balance between investor protection and founder dilution.
What triggers anti-dilution adjustments?
Issuing new equity at a lower price than earlier rounds (a “down round”) typically triggers the adjustment.
Do liquidation preferences matter in a large IPO or acquisition?
In big exits (10x+ invested capital), liquidation preferences usually have little impact since all parties receive strong returns, but they can still influence exact distributions.
Are liquidation preferences negotiable?
Yes. Founders can negotiate for 1x preferences, caps on participation, or paripassu treatment across rounds to maintain balance.
What happens if my company exits below the total invested capital?
In this scenario, all proceeds go to preferred shareholders up to their preference amount, and founders may receive nothing.
What is a standard liquidation preference in venture deals?
Most deals use a 1x non-participating liquidation preference, meaning investors get their original investment back first, but no more.
When should a startup use a SAFE instead of a convertible note?
SAFEs are best for early-stage, fast-moving fundraising where simplicity and speed are critical, while convertible notes may be more appropriate if investors prefer debt protections.
Can multiple SAFEs cause dilution issues?
Yes. Issuing SAFEs at different caps can lead to more dilution than founders expect when they all convert. Careful modeling is important.
Do SAFEs always include a valuation cap?
Not always. Some SAFEs are uncapped, though most include either a cap, a discount, or both to reward early investors.
What is the main difference between a SAFE and a convertible note?
A SAFE is not debt, meaning it has no interest rate or maturity date. A convertible note starts as debt and must either convert or be repaid.
When should a startup consider raising with convertible notes?
They are most useful at the pre-seed and seed stage, or as bridge financing between rounds, when valuations are difficult to set and speed of funding is important.