The fund's lawyers do not represent you.

The fund's law firm represents the fund, not you

The single most important thing a founder or principal can understand about a financing is whose interests the lawyers in the room actually serve. When a venture fund or private-equity investor brings its counsel, that firm represents the fund. The startup's own corporate counsel represents the entity — not you personally. The term sheet, the stock-purchase agreement, the governance terms are all drafted to protect those interests, and if a conflict later arises between you and the board over your equity or your role, the company's lawyer is bound to the company, not to you. A founder who relies on those lawyers, or on none, is negotiating against experienced institutional counsel with no one watching their side. This page is about being the someone watching your side.

Counsel who has been on the institutional side

I have served as in-house and chief legal officer to private-equity-backed companies — I have been the institutional counsel, negotiating financings and acquisitions from the side of capital. That experience is the differentiator: I know how funds think, what their documents are really doing, which terms are genuinely market and which are overreach dressed up as standard, and where a founder has leverage they do not realize they have. Representing a founder or principal against sophisticated investors requires having played the other position, and I have.

The financing instruments and where they bite

Early-stage capital arrives through instruments that look simple and carry consequences founders miss. A SAFE (simple agreement for future equity) defers valuation and is fast and cheap, but stacking several with different valuation caps can dilute founders far more than expected when a priced round converts them — and a post-money SAFE locks in the investor's percentage and pushes all subsequent dilution onto the founders, while a pre-money SAFE behaves differently. A convertible note is actual debt: it carries interest and a maturity date, and if no qualifying round happens in time, holders can demand repayment or force conversion on punishing terms. A priced equity round (Series Seed/A) sells preferred stock and brings the full set of investor documents. Understanding these before signing — not after — is the whole job.

Term sheets: the control and economics buried below the valuation

Founders fixate on the headline valuation, but the clauses below it decide control and real payout. Liquidation preferences determine who gets paid first at exit — a 1x non-participating preference returns the investor's money before common shareholders share the rest, while a participating-preferred term lets the investor take its money back and then share again, materially shrinking the founder's exit. Protective provisions and board seats can hand investors veto power over major decisions regardless of their ownership percentage. Anti-dilution terms protect investors in a down round — a weighted-average formula is a measured adjustment, while a full-ratchet provision can wipe out large blocks of founder equity. None of this is visible from the valuation number alone.

Cap tables, vesting, 83(b), and the two mistakes that kill startups

A founder's protection starts with their own equity. Founder vesting — commonly four years with a one-year cliff — ensures a co-founder who leaves early does not walk off with a large unearned stake; the 83(b) election, made within a tight 30-day window after a grant of restricted stock, can prevent a painful tax result as the equity vests and appreciates; and the cap table must be kept clean, because errors compound and surface during diligence. Two legal failures recur in startups that struggle. First, the cap-table and equity mess: handshake splits, missing vesting, undocumented promises, and unfiled 83(b) elections that become disputes and tax problems exactly when the company is trying to raise or sell. Second, the IP-assignment gap: founders and early contributors who never formally assigned their work to the company, leaving the startup's core asset owned by individuals rather than the entity — which sophisticated investors and acquirers catch immediately in diligence, sometimes fatally. A related trap is taking informal friends-and-family money without proper securities (blue-sky) compliance, embedding a regulatory problem into the cap table. Getting these right at formation is cheap; fixing them later, under diligence pressure, is expensive and sometimes impossible.

What usually goes wrong

The defining failure is the founder who takes the investor's term sheet at face value, relies on the fund's counsel or none, and signs away control or economics they did not understand — discovering at exit that the liquidation preference or board terms left them with far less than expected. A close second is the co-founder arrangement with no vesting and no written equity agreement, which detonates when one founder leaves early holding a large undeserved stake. The third is the IP-assignment gap, where the company does not actually own the technology it was built on, surfacing fatally during diligence. The fourth is raising early money in violation of securities law, which institutional investors will refuse to clean up.

Related

• Business Formation & Entity Selection →
• Buying or Selling a Business (M&A) →
• Operating, Partnership & Shareholder Agreements →