Before they read your deck, they open your cap table. Most of these issues trace back to early decisions made without context. None of them are fatal. All of them are noticed.
01 — Equal founder splits
The red flag. 50/50. 33/33/33. When every founder holds exactly the same equity, it tells investors nobody had the difficult conversation about who contributes what.
What the investor reads. “If they can’t negotiate equity among themselves, how will they handle hard decisions under pressure?”
The fix. Equity should reflect contribution, risk, and role.
02 — No vesting schedule on founder shares
The red flag. All founder shares fully owned from day one. If a co-founder walks after six months, they leave with 40 percent of the company.
What the investor reads. “This is a ticking time bomb. One departure and the cap table becomes unrecoverable.”
The fix. Standard four-year vesting with a one-year cliff, applied to every founder.
03 — Too many advisors with too much equity
The red flag. Five to eight advisors each holding 1–3 percent. Combined, advisors own 10–15 percent of the company.
What the investor reads. “They gave equity away to anyone who offered advice early on.”
The fix. Advisors should typically receive 0.25–0.5 percent on a two-year vest with clear deliverables.
04 — Dead equity from departed members
The red flag. A former co-founder, early employee, or friends-and-family investor holds significant equity but is no longer involved.
What the investor reads. “Who is this person with 15 percent and no role?”
The fix. Negotiate a buyback or restructure before you raise.
05 — Messy convertibles and stacked SAFEs
The red flag. Multiple SAFEs or convertible notes at different caps, different terms, and different triggers.
What the investor reads. “If they can’t model their own dilution, we’ll find surprises in due diligence.”
The fix. Build a pro-forma cap table that models every scenario.
06 — Investor-unfriendly terms from early rounds
The red flag. An early angel or family investor negotiated aggressive terms: anti-dilution clauses, liquidation preferences, board seats, or veto rights.
What the investor reads. “We’d be investing behind someone with outsized control.”
The fix. Review every term sheet and side letter from previous rounds. Renegotiate or sunset problematic clauses.
07 — No ESOP or option pool reserved
The red flag. Zero equity set aside for future employees. The founders plan to “figure it out later.”
What the investor reads. “They haven’t thought about the team they need to build.”
The fix. Reserve 10–15 percent for an employee option pool before you raise.