Understanding Investor Terms & Incentives || Rookie Mistakes with Dalton Caldwell and Michael Seibel

TL;DR

Founders must care about fundraise terms as much as valuation/amount; investors often grant high valuations but demand unfavorable jargon-filled terms (e.g., participating preferred, super prorata, board control) that can screw founders. The phrase "come back when you find a lead" is a polite no.

Key insights

• Investors aware that founders want high valuations and large dollar amounts; they exploit this by offering the ask on valuation but demanding terms that founders do not fully understand.
• Board control given up for small raises (e.g., $1M) can result in founders being fired.
• Investors optimize for outcomes they have seen: those used to small exits (e.g., $10–20M) structure documents around base hits, while those with experience in billion-dollar companies offer better ter