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Miles Jennings
@milesjennings
1/ We're seeing more and more crypto startups stuck with predatory terms from early-stage deals. Don't let early-stage investors set you up for long-term failure and jeopardize future fundraising rounds. Here's what you should look out for:
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Miles Jennings
@milesjennings
2/ Investor's Behaving Badly - Fixed Token Allocation Rights: Beware fixed, non-dilutable token interests. They limit flexibility and future growth, forcing founders to sacrifice builder incentives. Token rights should be proportional to equity and dilutable.
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Miles Jennings
@milesjennings
3/ Investor's Behaving Badly - Short Lockups: Short lockups can be dangerous, enabling investors to sell early and disrupt project stability. Lockup schedules should be the same among investors and ensure long-term commitment from all stakeholders.
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Miles Jennings
@milesjennings
4/ Investor's Behaving Badly - Blocking Rights: Unqualified approval rights over a token launch give investors hold up rights to negotiate for better economics. Founders should maintain control over launch decisions to avoid strategic misalignments.
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Miles Jennings
@milesjennings
5/ Investor's Behaving Badly - Network Exploitation: Investors shouldn't compete with their portfolio companies. Unrestricted use of company tech by investors can undermine the project’s goals and should be prohibited.
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Miles Jennings
@milesjennings
6/ Investor's Behaving Badly - Disregarding Regulatory Compliance: Investors ignoring portco regulatory compliance likely don't take their own compliance seriously either, which can put companies at risk. Prioritize partnerships with those that care about the law.
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Miles Jennings
@milesjennings
7/ For more, see the post we just published: https://a16zcrypto.com/posts/article/token-rights-in-term-sheets-how-to-avoid-predatory-deals/
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