Definition
Founder-Friendly Terms
Founder-friendly terms are deal conditions that favour founders, such as low liquidation preferences, mild anti-dilution and limited investor control.
In competitive markets where capital chases good startups, founders can negotiate founder-friendly terms: a 1x non-participating liquidation preference, broad-based weighted-average anti-dilution, fewer protective provisions, and retained board control. In tougher markets, the balance shifts toward investor-friendly terms.
The phrase captures the negotiating dynamic of a term sheet. Excessively founder-friendly terms can later deter sophisticated investors, while overly harsh terms can demotivate founders, so a balance is usually sought.
Related terms
- Term SheetA term sheet is the non-binding document that sets out the key terms of a proposed startup investment before definitive agreements are drafted.
- Liquidation PreferenceA liquidation preference gives preferred investors the right to get their money back (or a multiple of it) before common shareholders in an exit or wind-up.
- Anti-Dilution ProvisionAn anti-dilution provision protects investors from dilution if the company later raises money at a lower price than they paid.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.