The Isolated Events Mistake
Founders often think about financing as isolated events. The seed round is over — now we build. Eventually we'll do the Series A. When Series A is done, we'll think about Series B.
This framing is natural and almost entirely wrong.
Every round creates obligations, expectations, and governance that shape every subsequent round. The investors at seed will be at your board table for seven to ten years. The liquidation preferences you agree to will determine what gets paid in every exit scenario. The information rights you grant will determine who can call a board meeting at an inconvenient time. The protective provisions you sign will determine what decisions you can make unilaterally versus which require investor approval.
The Dilution Waterfall
A founder entering seed at 80% drops to 55% post-seed, 38% after Series A, 26% after Series B, 18% at Series C. By exit, proceeds feel smaller than expected. The math compounds through every round. An exit at $100M where founders hold 18% generates $18M — before taxes, before further dilution from options exercised. Not the number most founders had in mind when they started.
I've sat on both sides. As a founder I modeled the full dilution waterfall before signing any term sheet. As an investor I reserved capital for pro-rata in my best companies. The ones where I exercised at Series A are where the math worked out.
The Dilution Path
Approximate. Actual varies by round size, valuation, and option pool refreshes.
The Terms That Compound
The most consequential terms aren't the ones that look largest in the term sheet — they're the ones that compound across every subsequent round. Liquidation preferences stack. Board composition evolves. Pro-rata rights determine who has the ability to participate in future rounds.
A 2x participating preferred liquidation preference at seed means investors get 2x their money back before founders see anything in an acquisition, then also participate pro-rata in the remainder. In a $75M acquisition with $8M in seed capital at that preference: investors get $16M first, then participate in the remaining $59M pro-rata. The difference versus a clean 1x non-participating preferred is often $5-10M in founder proceeds.
The Long Relationship
The investors you take capital from at seed will be part of your company for seven to ten years. They will be in the room for the hardest decisions — the pivot, the acquisition offer you're not sure about, the executive departure, the down round. Choose them not just for the capital or the brand, but for how they behave when things are hard.
Model the full stack before signing. Not just the current round — the entire path from here to the exit you're targeting. Know what you'll own. Know who will have the power to block major decisions. Know whose interests are aligned with yours at different exit valuations. Then sign.