Equity is crucial – first investment rounds and early decisions can help you make it or may drag you down for years. WIDEN‘s team is sharing with you some crucial pointers from real life to help you make it and make it big. Meet WIDEN’s team at Latitude59, on the second floor – visit the Legal Clinic for startups, founders, and future founders to get free advice from the legal jazz company (you can already book your 30-minute slot HERE!)
Boom! You performed well at the Latitude59 pitch competition and have three investors lined up to help bring your idea and product to the next level by investing the first six-digit sum into your company.
Now what?
You should always start with the end in mind – and be prepared. Here are five topics you should be thinking about to avoid burning your opportunity before it even begins.
- Signing What You Don’t Understand
Startups often rush into investment deals without reading the fine print—or even understanding the basics. Terms like “reverse vesting,” “bad leaver,” or “drag-along” aren’t just legal jargon; they’re loaded with consequences. These concepts aren’t clearly defined in law, which means they’ll mean exactly what your agreement says they do – for better or worse. You cannot presume their meaning – you have to dig deep and understand exactly what you’re signing up for. If you do not yet have the possibility to arrange tailor-made documentation, make sure you use clear, well-known agreement templates, but remember – templates aren’t always founder-friendly. Always get proper legal advice before signing anything.
- The Team Chemistry Is Crucial – Avoid 50/50
The founding team of a startup isn’t just a group of colleagues—it’s a pressure-cooker partnership. Through shared risk, it either becomes a meaningful long-term alliance – or it blows up dramatically. One of your most important decisions is who you choose to build with. Splitting equity 50/50 may feel fair in the beginning, but it’s often a recipe for disaster. Equal ownership leads to deadlock when tough decisions arise. Instead, agree early on who has final say, or structure ownership to reflect actual contributions. At the very least, include deadlock resolution clauses and clear exit options in your shareholder agreement.
- The Misleading “Percent of the Company” Pitch
When bringing in your first hires or advisors, saying “you’ll get 2% of the company” might sound exciting – but it’s misleading. Equity offers need context: how are they affected by future funding rounds? What happens in a sale? Many founders forget to explain dilution, liquidation preferences, and vesting schedules. Communicate in real numbers, grant mechanics, and realistic exit scenarios. If you can’t explain it clearly, don’t offer it yet – or make your caveats crystal clear.
- Overpromising and Overspending
Telling investors your MVP will be ready in three months might win applause, but delivering it in twelve could kill your credibility – and your shot at follow-on investment. Every legal document is backed by a business plan, and if that plan collapses, no clause in the contract can restore trust. Startups often burn through capital chasing growth before locking down their core offering. Yes, “fail fast” is the motto – but you need to be strategic about the bets you place. Anchor your spending to clear, achievable milestones. Be bold, but realistic. Investors back execution, not just ambition.
- Losing Control to Your Own Investors
You need investors – but you don’t want to end up treating them like your boss from your first job. Startups sometimes agree to overly burdensome terms – weekly updates, veto rights, even early board seats – far too soon. Good governance doesn’t mean giving up control. And your reporting obligations shouldn’t require a team of analysts working full-time. Set realistic expectations, be proactive with communication, and protect your right to move fast and make decisions. You’re the founder. Act like one.
Raising your first round isn’t just a milestone – it’s a minefield. The good news? These mistakes are all avoidable if you know what to look out for. Get clear, get aligned, and don’t sign anything you don’t fully understand. Investors are betting on you – so lead like someone worth betting on and before signing anything, talk to a lawyer who’s seen it all – because your first round shouldn’t be your last.
Thinking 3 steps ahead – you can also already book a slot at the WIDEN Legal Clinic at Latitude59 for a 30-minute free chat with a professional lawyer here.
