Hey friends, it’s Jorian—welcome to Into the Ring. I’m a startup fundraising coach for top founders and have worked with 60+ founders who’ve raised over $270M. (Want to work with me? Check out more details at jorianhoover.com)

This past week there was lots of chatter on the whole Valar / Day One saga over pro rata and spring-back rights. So I decided to do this week’s deep dive on some real stories of when term sheets have gone wrong (or said differently, they went exactly as written — but the founders or VCs weren’t happy) so that you can learn from them.

I’m also sharing a 1min take on enjoying Instinct, sharing last week’s Tier 1 funding rounds, and giving my recommended VC essays & podcasts.

BTW, off-topic but is anyone else struggling to keep up with fantasy football these days? I really miss the social part of playing and so this year I’m doing a league again. But I just can’t get myself to do all the research I once did to review the waiver wire, propose trades, and so on. LOL, during the draft I just took whoever the most recommended player was then (though I made sure I didn’t pick 4 TEs). Probably a sign I should throw my Claude at it, but that would ruin the fun.

As always, thank you for being part of this Into the Ring tribe of 2,000+ startup founders and operators/investors from OpenAI, Anthropic, a16z, Lightspeed, etc. If you think someone else might like this newsletter, they can sign up here.

Now onto today’s newsletter!

I’ve been using Instinct the past couple months and just wanted to give a quick plug that I’m really enjoying it. There are lots of random personal research tasks that I now have a place to turn to.

Some of my favorite use cases have been:

Have you been using Instinct (or Muse, or something else) as a personal agent? What have been your favorite use cases?

Over the past couple weeks X has been awash with the fallout from the Valar Atomics & Day One Ventures saga. The saga has been about the pro rata and spring-back agreement, which I’ll get into later.

What I wanted to do with today’s deep dive is something a bit different than usual. Founders often wonder what terms beyond amount invested, valuation, and board seats they should care about in a term sheet, and also - why they should care.

Below I’ll detail three public, stories about times things turned sour later on in a company’s life related to the term sheet. While I hope none of these stories happen to you, they highlight why it’s important to take care when signing a term sheet early on in your startup journey.

Summary:

A couple months ago in August 2026, Valar Atomics closed a $1B Series B led by Sequoia. In this round, every “Major Investor” (VCs are either classified as Major Investors or not) had waived their pro rata rights, but Valar wanted one existing Major Investor to re-invest anyways. This triggered a “spring-back” clause meaning that one allocation revived all the Major Investors’ rights.

Day One Ventures, a seed investor which held under 5% of Valar’s equity, now wanted to participate. And so one day before the Series B closed, a majority of the Major Investors amended the agreement to remove the spring-back clause. Day One has held that this clause could not be removed without its consent, and Valar actually sued Day One to declare that the amendment stands.

Analysis:

Historically, there has been a gentleman’s agreement for early investors to waive some or all of their pro rata in larger rounds to make them cleaner. However, this example shows that you cannot rely on gentleman’s agreements when the dollar values get so large (nowadays, a $1B round is no longer surprising).

While publicly many have supported Valar, in private VCs have shared how they’re sympathetic to the predicament Day One found themselves in.

Summary:

Back in 2021, Divvy Homes was valued at $2.3B. It had raised more than $700M across equity and debt. The equity holders had a very typical 1x liquidation preference. They had raised from the likes of Tiger Global, GGV Capital, and a16z.

Unfortunately, mortgage rates surged in 2022 and Divvy had to do three rounds of layoffs within one year. Then in 2025, Divvy sold substantially all its assets for about $1B. Of this $1B, the first group to get paid was the debt holders, then the transaction costs got paid, and then the liquidation preferences got paid out. But because the liquidation preferences were so massive, the common shareholders (i.e. founders, employees, etc.) received $0.

Analysis:

There wasn’t anything funky about the 1x liquidation preference that Divvy signed up for — in fact, in nearly 100% of term sheets I come across there’s a 1x liquidation preference. The story here is that if you raise a ton as a founder, then just know that the stakes increase of how much you will need to exit the company for before you or any of your employees get paid.

Just something to keep in mind before you sign on to an even larger term sheet.

Summary:

By 2018, FanDuel had raised hundreds of millions in late-stage equity from the likes of KKR and Shamrock Capital. These late-stage investors were entitled to the first $559M of any sale. After the US Supreme Court opened up sports betting in 2018, the company merged into Paddy Power Betfair’s US business at a value of $465M. Because this value was below $559M, the common investors would get nothing.

How did this merger happen then, if common investors would get nothing? Well the preferred shareholders had a drag-along right, meaning that a majority of these investors could decide on a merger/acquisition and “drag along” everyone else. That’s what KKR and Shamrock did, and what made it especially painful is that Flutter paid $4.2B to purchase their position just two years later. So, the founders of FanDuel sued in 2020, and that case is ongoing.

Analysis:

Drag-along rights can go both ways. In one sense, you’re giving away the keys to the castle - investors could presumably decide major company decisions without you. But on the other hand, it can also prevent just one VC from holding up an important merger or acquisition you want to do.

For founders who do agree to drag-along rights, it’s important to understand what scenarios and % approval they apply in, so you can tell if it can be used against you.

My goal here is not to give you specific advice on “take this term” or “don’t take that one.” Sure, there are things that are almost universally bad, like 2x or 3x liquidation preferences. But many other terms have pros and cons (as I detailed above with drag-along). And sometimes, to get a deal done, you just have to accept a term you don’t want.

The key though is to do your research, work closely with your startup lawyer, and go eyes wide-open into any term sheet negotiation. Don’t just trust that it’s a “clean” term sheet - but really try to understand it.

Remember that later-stage founders usually regret control terms they gave up far more than they’re happy about a bit higher valuation they scored early on. So don’t become that later-stage founder who wishes they could change history.

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