The Invisible Cost

When a VC offers you a term sheet, the headline valuation is often a vanity metric. The real economics are hidden in the Option Pool Shuffle.

The Pre-Money Trap

Investors typically demand that an Option Pool (usually 10-20%) be created before their money goes in (Pre-Money).

Why does this matter? If the pool comes out of the Pre-Money valuation, the dilution is borne entirely by the existing shareholders (Founders). If the pool comes out of the Post-Money valuation, the dilution is shared by the new Investors as well.

This subtle distinction can cost founders 5-10% of their company in a single email.

Anti-Dilution Provisions

Most Series A term sheets include "Anti-Dilution" clauses. This protects investors if you raise a future round at a lower valuation (a "Down Round").

• Weighted Average: A moderate adjustment to their conversion price. (Standard)
• Full Ratchet: A severe adjustment that reprices their shares purely to the new low price. (Deadly)

If you sign a Full Ratchet to get a higher valuation today, you are betting your entire ownership on never having a bad year.

Participation Rights

• Non-Participating Preferred: Investors get their money back OR their share of the company. (Standard)
• Participating Preferred: Investors get their money back AND then share in the remaining proceeds. (Double dipping)

Participating Preferred equity significantly lowers the payout for common stockholders (you) in a moderate exit scenario.

Simulation is Defense

You cannot negotiate what you cannot calculate. Use the Dilution Simulator to model these rounds. See exactly how a "20% Pool Post-Money" vs "20% Pool Pre-Money" changes your personal outcome by millions of dollars.