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New employees rarely, if ever, guide a startup's trajectory, even though they often directly help determine it. And startup employees’ incentives usually skew heavily toward equity in the company’s option plan—rather than salary—even though these employees usually have no say in how the company’s fundraising activities will impact the eventual value and payout of the held by the employees.

You’ve just received your first venture capital term sheet. Congratulations—you’ve earned it. Now what does it all mean? “Pre-money valuation,” “ preference,” “pro-rata participation rights”? A seasoned venture capitalist (in this post, a VC or investor) has seen and invoked these concepts hundreds, if not thousands, of times. You? Maybe not so much.

Assume you have been working on your startup for a year now, have raised one round of funding, and an acquisition offer of $20 million comes your way. As a founder and the majority shareholder, you will see most of this $20 million, right? Right? In truth, maybe you will and maybe you won’t.