3 May 2026
Most term-sheet advice tells founders to negotiate hard on every clause. The honest framework — laid out in a Harvard Business School note by Noam Wasserman, Furqan Nazeeri and Kyle Anderson (HBS 9-810-119, "A Rich-vs.-King Approach to Term Sheet Negotiations," 2010, revised 2012) — says the opposite. Which terms matter depends on which kind of founder you are. Trying to optimize for both wealth and control is not just hard; it is structurally unstable. Founders who refuse to choose tend to end up neither rich nor king.
Wasserman's research — across more than 1,000 founders, summarized in his book The Founder's Dilemmas (Princeton University Press, 2012) and in the HBR article "The Founder's Dilemma" (February 2008) — finds two dominant motivations for starting a venture: building wealth ("Rich") and maintaining control ("King"). The two are inherently in tension. To attract the best people and capital, a founder usually has to give up equity, board seats and decision rights — which produces a more valuable, less-controlled company. Bootstrap and you keep control, but the company is worth less. Try to do both and you tend to end up with neither.
The numbers underline how decisive this is. By year four, 50% of founders are no longer CEO. Fewer than 25% of startups that go public are still led by their founder-CEO. Four out of five founder-CEO replacements were forced out, not voluntary (Wasserman, HBR, 2008).
Brad Feld, who has written more publicly about term sheets than almost any active investor, compresses the two-page version of this into one sentence: "In general, there are only two things that venture funds really care about when doing investments: economics and control." (Feld, "Term Sheet: Price," feld.com, 2005.) Rich is economics. King is control. The term sheet is where the two meet on paper.
Wasserman scores eight common terms against each motivation, on a 0–10 importance scale. For the wealth-motivated founder, five matter:
Valuation (10/10). Pre-money vs post-money matters, but the harder edge is the option pool. If the pool is created before the round, founders eat the dilution alone. If it is created as part of the round, investors share it. The "expanded pre-money" structure — a 15% option pool baked into the pre-money calculation — silently shifts dilution to the founders. Read the share count, not just the valuation headline.
Option Pool (10/10). Linked to valuation, but worth its own line. Push for the option pool to come out of the post-money, or be capped, or be smaller than what the investor first proposes. A 15% pool when the company has hired three people is unwarranted.
Liquidation Preference (7/10). 1× non-participating is the standard for healthy deals. Anything richer should make you stop and read carefully. A 2× participating preference means investors get twice their money out first and participate again pro rata in the remainder — on a "good" exit, the founder team can be left with very little. In Wasserman's representative sample, 30–35% of deals included uncapped participation, 21–29% capped, and 40–44% had no back-end participation. Push for 1× non-participating.
Anti-Dilution Protection (5/10). Broad-based weighted-average appeared in 88–92% of deals in the sample (WSGR Entrepreneurs Report, 2009) and is acceptable. Full-ratchet — where one cheap share triggers a full re-pricing of all preferred — appeared in only ~4% of deals and is a flag. If you see it, ask why.
Dividend Rights (5/10). 0% is normal. A cumulative compounding dividend (like the 18% in the Ockham VC term sheet Wasserman uses as a teaching example) is a real cost — it accrues silently against the founder's eventual exit. Push for no dividend rights.
If those five are reasonable, the rest of the term sheet is mostly noise for a Rich-motivated founder.
For the control-motivated founder, three terms determine the outcome — and they are different terms:
Board Composition (10/10). The board chooses the CEO, approves new shares, and shapes the mission. Equity percentage is downstream of the board, not upstream. A founder with 60% of the equity but two of five board seats does not control the company. Jeff Bussgang, interviewed in Wasserman's note, puts it directly: "King-motivated entrepreneurs should care about the board composition above everything else."
Protective Provisions (8/10). Investor veto rights over actions like new financing rounds, M&A, executive hires, debt above a threshold. A balanced version with a 10% ownership floor — vetoes lapse if the investor's stake drops below 10% — is reasonable. A list of operational vetoes that lasts as long as the investor holds any shares is an anchor on the company.
Drag-Along Rights (8/10). The right to force all shareholders to consent to a sale. Founders should push for joint consent (majority of preferred and majority of common) rather than investor-only triggers. Bussgang again: "The drag is the second most important term for the King-motivated entrepreneur. If the VCs can drag you, you have no vote in the M&A decisions."
If those three are right and the rest is standard, the King-motivated founder is in good shape — even if the headline economics look worse than the Rich-motivated alternative.
Three patterns repeat at the pre-seed stage:
Trying to negotiate every term. It dilutes your leverage and signals that you do not know which fights matter. Pick three. Defend them. Accept the standard versions of the rest.
Not knowing whether you are Rich or King. Most founders say "I want both" and then make Rich-style trade-offs — heavy dilution for capital, board partner with operational expertise — while privately expecting to remain CEO for a decade. The two are not compatible at the median. Wasserman's data is the proof.
Confusing "standard" with "fine." Most term sheets contain standard clauses that exist because they protect investors. They are "standard" from the investor's side. From the founder's side, the cost depends on which type you are. A 1× non-participating preference is genuinely fine. A 2× participating preference is also "standard" in some markets — and a real problem for the founder team.
For the operating manual on the terms themselves — how each one works mechanically, what the math looks like — Brad Feld and Jason Mendelson's Venture Deals (now in its 5th edition, Wiley, 2022) is the best plain-English treatment. It pairs well with Wasserman's framework: Feld tells you how the terms work, Wasserman tells you which to fight for.
The Wasserman framework was built on US Series-A negotiations. The Icelandic pre-seed reality differs in size — rounds of 30–150 MISK rather than $5–10M — but the structural logic still applies, and arguably hits harder.
Two factors compound the choice for Icelandic founders:
The next round may not come, or may come from a different geography. If you optimized for Rich at pre-seed and gave up board control to a fund that will not follow on, you are exposed when capital pulls back. King is more defensible in a thin market because the founder is the continuity.
The board is small. A five-seat board with two investor and two founder seats puts the fifth — the "mutual designee" or independent — at the centre of every contested decision. Who sits in that seat, and who picks them, is more important than the percentage equity split.
A specific pattern we see: pre-seed founders accept a Series-A-style term sheet because their lead investor pattern-matches from outside Iceland. The terms are not unusual on their face. They are wrong for the company's stage.
We tell founders three things at the first-term-sheet stage.
First: be King at pre-seed, drift toward Rich by Series A. The first round should preserve maximum decision rights, because the company is still figuring out what it is. By the time you raise a Series A, the question is no longer "what should we build" but "how fast can we scale what works" — and at that point, capital and a board partner earn their seats. Founders who flip the order — Rich at pre-seed, King later — usually cannot get to King later.
Second: pick three terms. Two from the King list (Board Composition and one of Protective Provisions or Drag-Along) and one from the Rich list (Liquidation Preference, because nothing else can quietly wipe you out at exit). Defend those three. Accept the standard versions of the rest.
Third: read the actual sources. The Wasserman/Nazeeri/Anderson note is the framework. Feld's blog and Venture Deals are the operating manual. Bussgang's Mastering the VC Game (Portfolio, 2010) is the view from inside the room. Two evenings of reading is enough to negotiate one term sheet better than most first-time founders do.
We disagree with the conventional founder wisdom that "valuation is what matters and the rest is boilerplate." For a Rich-motivated founder, valuation is one of five things that matter — and not the most leveraged one in a small market. For a King-motivated founder, valuation is barely on the list.
If you have a term sheet in front of you:
Spend an hour deciding whether you are Rich or King for this round. If you cannot decide, you are King by default — preserve control until the data tells you to trade it.
Identify the three terms that matter for your type, using the rankings above.
Read the relevant chapters of Venture Deals — economics chapters if Rich, control chapters if King.
Negotiate those three. Accept the rest.
If you do not have a term sheet yet but expect to raise within twelve months, do steps 1–3 now. The first time you read a term sheet should not be the first time you have seen these clauses.
If you want a second read on a term sheet, write to us at pitch@valaris.is.
Primary framework: Wasserman, Noam, Furqan Nazeeri, and Kyle Anderson. A "Rich-vs.-King" Approach to Term Sheet Negotiations. Harvard Business School Note 9-810-119, 2010 (revised December 2012). Available through HBS Publishing.
Background on the founder's dilemma: Wasserman, Noam. The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton University Press, 2012. Also Wasserman, "The Founder's Dilemma," Harvard Business Review, February 2008.
Operating manual on each term: Feld, Brad, and Jason Mendelson. Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. 5th edition. Wiley, 2022. Also Feld's blog series at feld.com, beginning with "Term Sheet: Price," 3 January 2005.
Inside the room: Bussgang, Jeff. Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms. Portfolio, 2010.
Deal-level data: Wilson Sonsini Goodrich & Rosati, The Entrepreneurs Report: Private Company Financing Trends. WSGR publishes this quarterly; the 2009 and later editions are the source for the deal-frequency statistics quoted above.
Background statistics on founder-CEO succession: Wasserman, "Founder-CEO Succession and the Paradox of Entrepreneurial Success," Organization Science 14, no. 2 (2003): 149–172.