Ownership Isn’t Control
Founders love to talk about ownership.
They celebrate majority stakes, post cap tables, and chase valuation headlines.
But control? That’s a different story.
Control isn’t about equity.
It’s about who gets to say “yes” when things get messy.
And buried deep in your term sheet are clauses that give someone else the final word when it matters most.
No one tells you this up front.
It doesn’t happen in dramatic boardroom showdowns.
It happens in silence. One clause. One sentence. One “standard term” that sounds harmless.
You bootstrap for years.
You finally raise a seed round.
It feels like progress. But hidden in the fine print is a clause that says any major change requires investor consent.
Fast forward a year.
Revenue flatlines. You need to pivot fast.
But your investor doesn’t agree. So you wait. And wait. And burn.
Until the moment passes. And so does your shot at saving the company.
This isn’t about fear. It’s about clarity.
Because if you don’t know who holds the veto, you’re not running the company.
You’re just along for the ride.
5 Clauses That Quietly Strip Founders of Power
Here’s what most founders miss. You can still own 70% and be powerless.
1. Protective Provisions (a.k.a. Investor Veto Rights)
These require investor approval for anything significant—strategy pivots, key hires, acquisitions, debt. They sound harmless. “Just protective.” But they put investors in the driver’s seat, even with a minority stake. That means you don’t just need a good idea. You need their blessing.
Source: Pace Ventures on the Big Five Clauses
2. Liquidation Preferences With Participation Rights
It starts as a “standard preference.” Investors get paid first in an exit. But with participation rights, they don’t just get paid first. They also share in what’s left. That means even a great exit can leave you and your team with crumbs.
Source: Toptal on Common Founder Mistakes
3. Full-Ratchet Anti-Dilution
On paper, it protects investors in down rounds. In practice, it crushes founder equity. One drop in valuation and suddenly, their ownership spikes while yours gets sliced. You could hit milestones and still lose ground.
Source: Startup Movers on Term Sheets
4. Drag-Along Rights
If a majority agrees to sell, everyone must follow. Fair? Maybe. But if your investors control the board, you could be dragged into a sale at the wrong time, for the wrong price, with no real say in the matter.
Source: WOWS Global on Red Flags
5. Mandatory Redemption Rights
This one rarely gets talked about. After 5 to 7 years, investors can demand to be bought out. If you can’t pay, you’re looking at a forced sale or worse. It’s a countdown clock buried in your cap table.
Source: Startup Law Blog
Why Founders Keep Falling For It
It’s not ignorance. It’s pressure.
You’re raising money. You’re grateful someone said yes.
You’ve got a team to pay, momentum to keep, and you’re eager to announce the round.
So you skim. You trust the template.
You assume it’s “standard.”
And then reality hits months later when it’s time to make a hard decision. Suddenly, you’re stuck waiting for approval from someone with 15% of the company and 100% of the control.
How to Protect Yourself
This isn’t about paranoia. It’s about protecting what you’re building.
Bring in a real lawyer. Someone who lives in the startup world.
Push back on vague language.
Ask one question over and over:
Who can say no?
Spell out decision rights in governance documents.
Not just ownership percentages.
And above all, stay aligned with your investors. Build trust. But remember, trust is not a strategy.
Clear agreements are.
Final Word: Build With Eyes Open
Control doesn’t disappear in a big moment.
It erodes one clause at a time.
Founders don’t lose their companies when they give up equity.
They lose them when they give up the right to decide.
So the next time someone hands you a term sheet, don’t just count your shares.
Ask the only question that matters:
Who decides when it counts?
Because if it’s not you, then it’s not your company anymore.
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