Hot take: The advice you're getting about term sheets is wrong. It feels productive, but it's a trap that's actively destroying your portfolio's potential. Let's talk about the uncomfortable truth.
I’ve been in Silicon Valley for a long time. I’ve built companies, sold them, and now I spend my days investing in the next generation of founders. I’ve written over 200 angel checks into companies you’ve probably heard of—Anthropic, OpenAI, Scale AI, Hugging Face. And I’m telling you, the single most overrated activity in venture capital is optimizing the term sheet at the early stage.
Every VC blog and Twitter guru tells you to fight for pro-rata, to get that extra 0.5x on your liquidation preference, to make sure the legal language is ironclad. It sounds smart. It feels like you’re doing your job. But you’re not. You're playing a small game, and it's costing you big.
The Time I Wasted a Month on Nothing
I remember it vividly. A few years back, I was leading a seed round for a promising AI startup. The founder was brilliant, a true 10x engineer who had a unique insight into a massive problem. We had a handshake deal. We were excited. Then the lawyers got involved.
We spent four weeks—an eternity in a startup’s life—redlining a term sheet. We argued over the most ridiculous things. The voting rights on a future financing round that might never happen. The exact definition of a “competing” offer. The founder was getting frustrated. I was getting frustrated. The momentum we had built completely evaporated.
By the time we finally agreed on a “perfect” term sheet, two things had happened. First, a competitor had launched a beta product and was getting real user feedback. Second, the founder’s morale was shot. He’d spent a month dealing with lawyers instead of building his company. The company eventually failed to raise a Series A. They ran out of steam. And I’m convinced that month we wasted was the beginning of the end. We won the battle on paper but lost the war.
You're Focusing on the Wrong Risk
The entire obsession with term sheets comes from a fundamental misunderstanding of risk at the seed stage. You think you’re de-risking the investment by adding clauses. You’re not. At this stage, the risk isn’t in the terms. The risk is 100% concentrated in two things:
- The Founder: Are they an unstoppable force of nature? Will they run through walls to make this happen?
- The Market: Is there a desperate, burning need for what they are building?
That’s it. Everything else is a distraction. Your 1.5x liquidation preference doesn’t matter if the company goes to zero. Your pro-rata rights are worthless if the company never raises another round. You are trying to optimize for a 10% better outcome in a scenario that has a 1% chance of happening, while completely ignoring the 90% chance of total failure.
Instead of spending a month with lawyers, you should be spending that month with the founder. You should be introducing them to potential customers. You should be helping them recruit their first engineer. You should be adding real, tangible value that actually increases the odds of success.
My Investment in Scale AI Wasn't About the Terms
When I invested in Scale AI, do you know how much time I spent on the term sheet? Almost none. I’d known Alex Wang for a while. I saw his incredible drive and the clarity of his vision. He was attacking a huge, unsexy, and technically difficult problem: creating high-quality training data for AI. The early signs of customer love were already there.
Was the term sheet perfect? I honestly don’t remember. And that’s the point. It didn’t matter. I wasn’t investing in a piece of paper. I was investing in Alex. I was investing in his ability to build a generational company. My focus was on getting him the capital and support he needed to execute, as fast as humanly possible. The rest is history. That's a multi-billion dollar company now. If I had tried to squeeze him for an extra half-point of ownership, I might have soured the relationship and missed out entirely.
This is the pattern I see over and over. The best investments are not the ones with the best terms. They are the ones with the best founders.
A Better Way: Syndicates and Rolling Funds
This is a big reason why I’ve structured my own investing around syndicates and a rolling fund. These structures are built for speed and alignment, not for protracted negotiations.
- Standardized Terms: With a rolling fund, the terms are largely standardized. Founders know what they’re getting. There are no surprises. We use a simple SAFE or a standard seed-stage agreement.
- Focus on Relationships: It frees me up to do what I do best: meet founders, understand their vision, and make a decision. My value isn’t in my legal prowess; it’s in my network, my experience building companies, and my ability to spot talent.
- Move at Founder Speed: When a great founder is ready to go, you can’t tell them to wait a month for the lawyers to finish their dance. With a syndicate, I can get a group of value-add investors together and close a round in days, not weeks.
This approach allows me to see a high volume of deals and focus my energy where it has the highest leverage—on the people and the product, not the paperwork.
Stop Reading Term Sheet Guides
So here’s my challenge to you. The next time you’re evaluating a seed-stage deal, put the term sheet aside. Don’t even look at it. Instead, ask yourself these questions:
- If I could only have one thing—this founder or this term sheet—which would I choose?
- Am I genuinely excited to work with this person for the next 10 years?
- What can I do, right now, in the next 48 hours, to materially help this company succeed?
If you have great answers to those questions, the terms will work themselves out. Sign the SAFE. Wire the money. And get to work helping your founder build the future.
Stop being a paper-pusher. Be a company builder. Your returns will thank you for it.
Frequently Asked Questions
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.
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.
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.
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.