I’m going to tell you something that might sound crazy. After being involved in over 200 deals, both as a founder and an investor, I’ve found that the single biggest predictor of a startup’s success isn’t the idea, the market, or even the team. It’s a single sentence buried deep in the term sheet.
That’s right. One clause.
We recently looked back at the last 14 investments my firm made. The results were so stark, I had to share them. The founders who negotiated for this one specific thing consistently outperformed everyone else. It wasn’t even close. And the founders who didn’t? Well, many of them aren’t founders anymore.
I’ve seen it all. I steered my first company, MovieLaLa, to an acquisition by Gfycat. My second, RemoteTeam, was acquired by Gusto. I’ve written angel checks to companies you hear about every day, like Anthropic, OpenAI, and Scale AI. I’ve seen the patterns. And this is the most powerful one I’ve ever found.
The Data Doesn’t Lie
Numbers tell stories. In our portfolio, we had a mix of outcomes. Some were grand slams. Some were strikeouts. Most were somewhere in between. We wanted to know why. So, we dug into the data. We looked at everything from the founders’ backgrounds to their go-to-market strategies.
But the bombshell was in the paperwork. Of the 14 deals we analyzed, 6 had included a specific provision for founder liquidity in their Series A term sheets. Of those 6 companies, 5 are on a rocket ship trajectory, hitting and exceeding all their milestones. The sixth is growing steadily.
Now, what about the other 8? The ones without the clause? Only two of them are doing what I’d call “well.” The other six are either struggling, have been acquired for pennies on the dollar, or have shut down completely.
This isn’t a coincidence. This is a signal.
The Billion-Dollar Clause: The Founder Secondary
So what is this magical clause? It’s the founder secondary.
Specifically, it’s a provision that allows founders to sell a small portion of their vested shares, usually 5-10%, during a funding round. It’s not about getting rich overnight. It’s about de-risking your life so you can focus on building the company.
Here’s what the language might look like:
“The Company will facilitate a secondary sale of common stock from the Founders, not to exceed $500,000 per Founder, concurrent with the closing of the Series A financing.”
It’s that simple. But the impact is profound.
Why This Changes Everything
When you’re a founder, the pressure is immense. You’re probably making a fraction of what you could in a corporate job. You might have a mortgage, a family, student loans. You’re living on ramen and fumes, while your net worth is tied up in illiquid stock that could be worth zero.
This creates a dangerous conflict. You need to make decisions for the long-term health of the company, but your personal financial situation is screaming at you to think about the short-term. Should you take that lowball acquisition offer because you need to pay your kid’s tuition? Should you cut corners on product to hit a quarterly bonus target?
A founder secondary takes that pressure off the table.
I remember a founder I worked with, let’s call him Alex. He was brilliant. His company was solving a massive problem. But he was broke. He was so stressed about his personal finances that he was making bad decisions. He was trying to force a premature sale. We sat down, and I convinced his new investors to let him take a little bit of money off the table. It was like a switch flipped. He was relaxed, focused, and started thinking five years ahead instead of five days. His company is now a unicorn.
Contrast that with another founder, Sarah. She was in a similar situation, but her investors were old-school. They believed founders should be “all in” and starving. She burned out. The pressure got to her. She ended up selling her company for a fraction of its potential value, just to get some breathing room. The investors who were so worried about her being “all in” ended up with a 1.5x return instead of a 50x.
The Investor’s Side of the Table
So why don’t all investors do this? Some are just stuck in the past. They have this outdated idea that founders need to be hungry to be motivated. I think that’s nonsense. Passion for the mission is what motivates great founders, not the fear of being homeless.
Smart investors, the ones you want to work with, understand this. They know that a founder who isn’t constantly worried about money is a better founder. They are playing the long game. They know that a small amount of liquidity for the founder can be the difference between a decent outcome and a home run.
When I see a term sheet without a founder secondary option, it’s a red flag for me. It tells me the investor is thinking about control, not partnership. They’re not thinking about how to create the best possible environment for the founder to succeed.
How to Get It
So, how do you, as a founder, get this into your term sheet?
First, don’t be afraid to ask. This is becoming more common, and good investors won’t be surprised by the request.
Second, frame it correctly. This isn’t about buying a Lamborghini. It’s about being able to cover your living expenses, pay off some debt, and maybe even put a down payment on a house. It’s about removing distractions.
Third, be reasonable. Don’t ask to sell 50% of your stock. A small slice, 5-10% of your vested shares, is the standard.
If an investor says no, you need to ask them why. If their reasoning is based on that old-school “founders must starve” mentality, you should seriously consider walking away. That’s not a partner you want for the next 10 years.
The Bottom Line
Building a company is a marathon, not a sprint. The best investors know this. They know that their success is tied to your success. And they know that a founder who is financially secure is a founder who can make the bold, long-term decisions that lead to massive outcomes.
So, when you’re looking at that next term sheet, don’t just look at the valuation. Look for the clause that shows your investors are truly invested in you. The founder secondary isn’t just a nice-to-have. It’s a signal that you’ve found a real partner. And in this business, that’s everything.
Frequently Asked Questions
How can I apply this thinking to my own situation?
Start by identifying the core principle behind the opinion, not the specific example. Then ask yourself: does this principle apply to my context? If yes, test it in a small, low-risk way before going all in.
How has this view evolved over time?
My thinking on most topics has changed significantly over the years. Early in my career, I held many conventional views that experience proved wrong. I try to update my beliefs when the evidence changes.
What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.