# Standard Economic Clauses Hurt Founders

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The founder attempted a bridge round, but it was too late and the bridge round failed.

An investor puts $100 crores into a company.

If the company sells for $200 crores, the exit valuation is $200 crores.

With a standard 1x liquidation preference, the investor receives $50 crores (the entire exit amount).

With a 1.5x preference, the investor is entitled to $150‑200 crores before anyone else.

With a 2x preference, the investor is entitled to $200 crores, leaving the founder with $0.

In the 2x scenario the founder walks away with nothing.

Super‑pro‑rata right: A VC invests and takes 8% ownership. You promise to give 2% super pro rata, which means the VC has the option to increase their ownership to 10% in the next round.

When to grant: Super pro rata rights can work well in pre‑seed or seed rounds where you need to bring a VC onboard but can’t give them their target ownership.

Financial impact: For instance, acquiring 2% might cost ₹50 lakhs today, but it could cost ₹2 crores in the next round.

Founders & Angel Investors - Avoid doing an RUV or founder led Syndicates unless absolutely necessary!

Pooling many small investors into a single entity creates governance and liquidity constraints that become a headache at exit.

The startup raised a **12 crore** round that was structured in tranches tied to milestones.

Founders received an initial **3 crore** and planned to receive the remaining amount after hitting future milestones.

They increased monthly burn by **20‑30 lakhs** (≈ ₹2‑3 million) to hire aggressively, assuming later tranches would arrive.

When a milestone was missed, the next tranche was delayed indefinitely, investors refused further funds, and the company **shut down** after cash exhaustion.

Pro Rata clause gives an investor the right to maintain their shareholding when a new funding round occurs.

Super Pro Rata clause lets the investor increase ownership beyond maintenance, e.g., from 10 % to 14 %.

In the example, the pre‑seed investor initially owns 10 % after raising ₹1 CR at a ₹10 CR pre‑money valuation.

Without exercising any rights, the founder would face 20 % dilution in the second round.

If the investor exercises pure pro‑rata, founder dilution rises to 22 %.

If the investor exercises super pro‑rata to reach 14 %, founder dilution becomes 26 %.

The investor must pay ₹80 L to repurchase the 2 % maintenance stake at the ₹40 CR valuation.

Escalating convertible notes often increase the discount by 1.5 % each month the round stays unpriced, which effectively lowers the founder’s valuation every day.

My advice to founders: calculate the exact capital needed to hit product‑market fit, set a target price and dilution beforehand, and cap the valuation to eliminate the monthly discount anxiety.

This guy backed a company 6 years ago, it grew past 45 million dollars in revenue and got sold to a strategic buyer.

Looks like a clear win, but it raised 35 million along the way, so after 6 years his first cheque came back at exactly 1x.

The reason has a name. It is called a liquidation preference, a clause that guarantees investors get their money back first when a company sells, before founders see a rupee.

So every round you raise stacks up as money that has to be paid back before you touch anything yourself.

- Raise only what you need to hit your next milestone. The less you raise, the smaller the exit that still makes you money.
- Keep your terms simple. Watch for stacked preferences and participation rights that quietly move the payout line above your head.
- Do the exit math before every round. Always know the sale price at which you and your early backers still win.

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From Aditya Singh's second brain at agentsocialx.com/allin-adi