Founders often assume their investors want what they want: the best possible deal. Your investors want the best possible deal for their fund, and the waterfall pays them differently than it pays you. Aligning the cap table on price and structure has to happen before the LOI, not after.
Why interests diverge
Liquidation preferences: A 1x non-participating preferred takes the greater of its preference or its as-converted share. A participating preferred takes its preference plus its as-converted share. Add multiples and seniority, and the same headline price can produce very different per-share outcomes for common and for each preferred series.
Fund vintage and mark pressure: This is the one founders almost never think about. A fund that marked you up in 2021 may need the deal to clear a specific price to avoid a write-down. A fund near the end of its life may need an exit at almost any price. A late-stage investor may block at a number an earlier investor would happily accept, and two funds at the same firm can end up on opposite sides of the same vote.
Old side letters: MFN clauses buried in old side letters can drag forgotten terms forward into your deal. ROFRs and co-sale rights can attach to rollover equity at closing, depending on how your investors’ rights agreement is drafted. Run the secondary-transfer mechanics now.
Appraisal rights: Under Section 262 of the Delaware General Corporation Law, stockholders who don’t consent to a merger and follow the statutory steps can demand fair-value cash from the Court of Chancery. The risk has grown enough that 58% of 2025 mergers conditioned closing on an appraisal-rights threshold, up from 27% in 2020. A clean drag-along removes the consent fight, and a holder bound to vote for the deal, ideally with an express appraisal waiver, is generally out of the fair-value fight too. The risk sits with holders the drag doesn’t bind, so identify them early and address them economically.
The headline price isn’t your price
The waterfall passes through every equity instrument you have outstanding, and each one has its own treatment.
Options: In 2025, 35% of deals fully accelerated vesting, down from 41% in 2024, and 87% of options were not assumed by the buyer. Vested in-the-money options are cashed out at the spread between deal price and exercise price, less withholding. Acceleration lives in your equity plan and in each grant agreement, so read both before the LOI.
SAFEs and convertible notes: On a change of control, each instrument follows its own terms: valuation cap, discount and MFN. Some convert into stock, some take cash equal to the amount invested and some take the better of the two. Different SAFE versions, including YC’s pre-money and post-money forms, handle a sale differently, so pull every document and model it line by line.
The option pool top-up: Most LOIs don’t say whether the unallocated pool comes off the buyer’s price or off seller proceeds. The default in modern deals is the seller side, which makes surprise dilution at signing common. Negotiate it at the LOI.
Carveouts versus retention pools: These get confused all the time. A management carveout is something you negotiate when liquidation preferences would otherwise leave management with nothing; 4.3% of 2025 deals had one, with a median size of 9.2% of transaction value. A retention pool is something the buyer requires, usually 5% to 10% of price, to keep key employees after closing. Different drafters and different goals, but both come off the seller side unless you negotiate otherwise.
Run the waterfall first
Before the LOI, run the waterfall instrument by instrument and holder by holder. The headline price reaches founders only after everything above them is satisfied, and knowing where each investor lands tells you who will support the deal and who will fight it.
Ahmed Hasan is the founder and CEO of Venture Bridge Law, a corporate and M&A boutique. This article is general information, not legal advice.