Resources for insight and
inspiration
Guides
Insights
Drag-Along Rights in Startup Financing: Streamlining Exits While Balancing Stakeholder Interests
When negotiating startup financing, founders often focus on valuation, equity splits, and immediate ownership. But long-term provisions in term sheets can be just as important, especially when it comes to company exits. One of the most impactful is the drag-along right.
Anti-Dilution Rights in Startup Funding: The Price Protection Mechanisms That Safeguard Investor Value
When structuring venture capital deals, founders often focus on valuation, investment size, and ownership splits. But within preferred stock agreements are provisions that can significantly reshape economics if future fundraising happens at lower valuations. Chief among these are anti-dilution protections.
Liquidation Preferences in Startup Funding: Critical Terms That Shape Exit Outcomes
When negotiating startup financing rounds, founders often focus on valuation, investment size, and ownership percentages. However, hidden within term sheets are provisions that can dramatically impact how exit proceeds are distributed. One of the most important of these provisions is the liquidation preference.
SAFEs: Streamlining Early-Stage Startup Investments
In today’s fast-moving startup ecosystem, the Simple Agreement for Future Equity (SAFE) has reshaped how early-stage companies raise capital. Introduced by Y Combinator in 2013, SAFEs were created to simplify fundraising while balancing the needs of both founders and investors.
FAQs
Open allOpen communication, clear documentation, and the guidance of legal or financial advisors can help resolve disputes. In many cases, accelerators or mentors recommend starting with an equal split and adjusting only when necessary.
Investors prefer balanced and fair structures that reflect commitment and discourage disputes. Unequal or poorly documented splits can raise red flags.
Vesting ensures equity is earned over time, protecting the company if a founder leaves early and keeping incentives aligned with long-term success.
Not necessarily. Equal splits can help maintain alignment, but contribution-based allocations may be appropriate if founders bring significantly different resources or commitments.
Most early-stage startups reserve 10%–20% for employee incentives, with flexibility depending on hiring plans and growth stage.
Percentages can shift as new shares are issued. Defining equity in terms of actual share counts provides more accuracy and avoids misunderstandings.
Not always. Equity is more common in early-stage startups and higher-level roles, though many growing companies expand equity participation to create a stronger ownership culture.
Equity value depends on company valuation, which changes with funding rounds, revenue growth, and market conditions. Clear communication from leadership helps employees understand potential value.
Vesting ensures employees earn equity over time, rewarding commitment and protecting the company if someone leaves early.
Stock options remain the most common, but RSAs and RSUs are increasingly popular depending on company stage and employee needs.
Risks include tax consequences, restructuring ownership rights, and compliance burdens. Without proper planning, these can create legal or financial complications.
If done correctly, conversion preserves continuity, meaning contracts, tax IDs, and operating history typically remain intact.
This is common when raising venture capital, preparing for an IPO, or offering equity compensation, since investors typically require the C-Corp structure.
Corporate conversion is the legal process of changing your business from one entity type to another, such as from an LLC to a C-Corporation, without dissolving and starting over.