What You Agree Today Defines Your Position Tomorrow

Do you own 51% of your company and believe you control every decision? Do you own 20% of a startup and feel certain you know how much you will receive at exit?

Maybe not.

The cap table shows percentages. The actual euros — and who makes strategic decisions — are determined by the clauses. And those clauses are negotiated in the term sheet, long before there is a shareholders’ agreement, long before anyone talks to a notary.

At Lexcrea, we advise both founders and investors in these negotiations. And what we see again and again is the same mistake: believing that the cap table percentage is what matters. It is not. What matters is what lies underneath it.

The Term Sheet: It Is Not a Contract, but It Defines Everything

The term sheet is the investment terms document. A statement of intent. The roadmap of the real negotiation.

What it is not: a legally binding investment agreement or an obligation to invest.

What it is: the draft of everything that will later be reflected in the shareholders’ agreement. And this is the trap: what is not negotiated in the term sheet is later accepted by default. Once the investor has a signed TS, the founder’s negotiating leverage drops dramatically.

Experienced investors know this. That is why they devote as much attention to control terms (veto rights, board composition, reserved matters) as they do to economic terms.

Premoney and Postmoney: Same Figure, Different Outcome

Before diving into clauses, there is a common confusion that has a direct impact on founder dilution.

Same number mentioned in the meeting. Same investment. Five percentage points of difference. Those five points come directly from the founders.

The 6 Clauses That Move the Cap Table — and the Real Return

Preferred Shares: Not All Shareholders Are Equal

Preferred shares grant their holders rights that ordinary shares do not have: they are paid first in profit distributions (cumulative preferred dividends), benefit from anti-dilution protection in down rounds, and enjoy special governance rights such as vetoes over certain matters.

The cap table may show the same percentage for ordinary and preferred shares. The actual return at exit may be radically different.

Liquidation Preference (LP): Whoever Gets Paid First Gets Paid More

LP determines the order and amount of payment in any liquidity event (sale, merger, liquidation). It is probably the clause with the greatest economic impact on founders.

Let’s look at a real numerical example:

Investor: €1M for 20% · Postmoney valuation: €5M · Exit at €4M

The cap table is identical in all five cases: the investor owns 20%. What changes radically is how much each party receives. An uncapped full-participating LP is the most damaging structure for founders in moderate-value exits.

Anti-Dilution: Investor Insurance Against Down Rounds

Anti-dilution protects investors if a new financing round occurs at a lower valuation than theirs (a down round). The mechanism: the investor receives additional shares without investing more money. Those shares dilute the founders.

There are two main types:

Full Ratchet — The Most Aggressive

The conversion price is adjusted exactly to the price of the new round, regardless of the amount issued. Even a small down round can cause massive founder dilution. Rare in Europe, more common in the US.

Example: €100,000 invested at €5/share → 20,000 shares. Down round at €2/share → investor increases to 50,000 shares. 30,000 additional shares without extra investment.

Weighted Average — The European Standard

The adjustment is weighted according to the size of the new financing relative to the existing capitalization. Much more balanced.

Same example with WA: adjustment results in 25,000 shares. +5,000 versus +30,000 under full ratchet.

Rule of thumb: always insist on broad-based weighted average. If the investor proposes full ratchet, that is a red line.

Option Pool: Dilution Before the Round

The option pool is the reserve of shares used to incentivize the team (stock options). It usually represents 10–20% of the cap table. The key question is not its size, but when it is created.

Agreed premoney: €4M · Pool: 15% · VC investment: €1M (20% postmoney)

In the pre-money scenario, all dilution from the pool falls on the founders. In the post-money case, it is shared by everyone. The percentage difference may seem small; the difference in exit proceeds can be very significant.

Vesting: The Clause That Protects the Company From Its Own Founders

Founders “earn” their shares progressively over time or upon achieving milestones. The standard structure: 4 years total with a 12-month cliff (nothing vests during the first year; after that, vesting occurs monthly or quarterly).

Key elements to negotiate carefully:

• Cliff period: if a founder leaves before 12 months, they leave with no shares.
• Good & Bad Leaver: repurchase price depends on the reason for departure. Significant negotiation room exists here.
• Acceleration: single trigger (change of control) or double trigger (change of control + founder termination). The latter is far more founder-friendly.

Drag Along and Tag Along: Who Decides When and How the Company Is Sold

Drag Along: if a third party wants to buy 100% of the company, the shareholder exercising the drag right can force the others to sell. This enables an exit even if a founder opposes it. Key negotiation points: minimum activation price (e.g. 3x postmoney) and required majority threshold.

Tag Along: if a founder sells their shares, the investor has the right to sell theirs on the same terms. This prevents the investor from being trapped as a minority shareholder alongside a new controlling shareholder.

Convertible Notes Do Not Avoid Dilution. They Postpone It.

A SAFE or convertible note (CN) is bridge financing that converts into equity in the next financing round. These instruments are common at early stages because they avoid immediate valuation discussions. But they contain critical variables that must be modeled before signing.

Valuation cap: limits the conversion price available to the investor.

CN of €200,000 with a €2M cap · Series A closes at €5M premoney

• Without cap → converts into 4%
• With €2M cap → converts into ~9%

A five-point difference that comes directly from the founders.

Discount: converts at a lower price than the round. When both mechanisms apply, the investor benefits from whichever is more favorable.

The Three Types of Dilution — and Which One Is Most Dangerous

You can suffer all three simultaneously. And they are not always visible in the cap table.

• Economic dilution: reduction of actual financial return at exit due to LP, anti-dilution, or CN conversion. It does not appear in percentages; it appears in the cheque.
• Governance dilution: loss of formal decision-making power (majorities, vetoes, board composition). You may own 51% and still be unable to approve the budget, a new financing round, or the hiring of a senior executive if reserved matters require investor vetoes.
• Control dilution: the most silent and most dangerous. Loss of the ability to strategically direct the company despite retaining a shareholder majority, due to a combination of operational vetoes and investor-controlled boards.

The question every founder and investor should ask is: which of these can you live with? There is no universal answer. But you must understand what you are giving up before deciding whether it is worth it.

Same Cap Table, Same Exit, Radically Different Outcome

The best summary of everything above is this example:

Investor: 40% · Founders: 60% · Exit at €6,000,000

Difference: ~€1,000,000. The cap table is identical. The clauses operate beneath it.

The Cost of Not Knowing

Conclusion: Negotiate From Knowledge, Not From Need

Founders or investors who negotiate without understanding these clauses negotiate from necessity. And those who negotiate from necessity lose.

This is not about distrusting investors or founders. It is about knowing exactly what is being signed, what it means under different exit scenarios, and where the real negotiating leverage lies.

Understanding how a term sheet translates into a cap table is essential to your company’s financial health. Every clause can have a direct impact on your ownership and on that of your investors.

At Lexcrea, our commitment is to provide comprehensive support that goes beyond drafting documents and includes analyzing the strategic implications of every decision. With a technical yet empathetic approach, we help you navigate this process with confidence and clarity.

Contact us at lexcrea@lexcrea.com for an initial consultation. We will analyze your situation, the key clauses in your transaction, and how to protect your position before signing.

• By Lexcrea
• 22/05/2026
• From Term Sheet to Cap Table: Impact on Your Dilution