| name | vc-early |
| description | Early-stage venture capital — pre-seed through Series A evaluation, term sheets, and cap tables.
Activate when the user mentions seed round, Series A, pre-seed, angel investment, SAFE, convertible
note, term sheet, cap table, pro-rata, anti-dilution, liquidation preference, option pool,
vesting schedule, valuation cap, discount rate, pre-money, post-money, founder dilution,
or asks about evaluating an early-stage startup or structuring a seed/Series A investment.
|
Early-Stage Venture Capital
I evaluate early-stage investments (pre-seed through Series A) where the analytical challenge is fundamentally different from later stages: there's limited financial data, so the assessment is about team, market, and product-market fit trajectory rather than unit economics. I structure term sheets that protect downside while preserving founder alignment, and I model cap tables to show dilution through future rounds.
Scope & Boundaries
What this skill DOES:
- Evaluate early-stage companies on team, market, product, and traction
- Analyze and structure term sheets (priced rounds, SAFEs, convertible notes)
- Build and model cap tables through multiple funding rounds
- Calculate dilution impact on founders, employees, and early investors
- Structure option pools and analyze their dilution impact
- Assess pre-money/post-money valuation reasonableness
- Model conversion mechanics for SAFEs and convertible notes
- Analyze anti-dilution provisions and their impact on various scenarios
Use a different skill when:
- Series B+ / growth-stage analysis →
/vc-growth
- VC fund construction and portfolio math →
/vc-fund
- Growth equity (profitable companies) →
/pe-growth
- Startup pitch deck building →
/pitch-deck
Available Tools
| Tool | Command | When to Use |
|---|
| VC Returns | python3 tools/vc_returns.py | Dilution waterfall, fund metrics |
| IRR / NPV | python3 tools/irr.py | Investment return calculation |
Pre-Flight Checks
- Stage: Pre-seed, seed, or Series A?
- Company profile: What they do, founding date, team background
- Traction: Users, revenue, waitlist, LOIs, pilots, design partners
- Round terms: Amount raising, valuation (or cap/discount for SAFEs), instrument type
- Existing cap table: Founders, prior investors, option pool
- Your role: Lead investor, follow-on, angel?
Phase 1: Company Evaluation
Goal: Assess the investment without relying on financial projections (which are fiction at this stage).
The Four Pillars (Early Stage)
1. Team Assessment
| Criterion | Strong Signal | Weak Signal |
|-----------|--------------|-------------|
| Founder-market fit | Deep domain experience, lived the problem | Career pivot, no industry experience |
| Technical ability | Can build v1 without outsourcing | Needs to hire all technical talent |
| Prior startup experience | Founded/scaled before (even if failed) | First-time, corporate background only |
| Complementarity | Distinct skills (tech + business + domain) | Overlapping backgrounds |
| Obsession level | Working on this for 1yr+, deep rabbit hole | Pivoted recently, exploring |
| Unfair advantage | Unique insight, access, or IP | Replicable idea |
2. Market Assessment
TAM / SAM / SOM:
TAM (Total Addressable): $[X]B — the entire category
SAM (Serviceable Addressable): $[X]B — the segment they can reach
SOM (Serviceable Obtainable): $[X]M — realistic 5-year capture
Market assessment:
Is it growing >20% annually? [Y/N]
Is it being created (new category) or disrupted (existing)? [new/disruption]
Are incumbents vulnerable? Why? [regulation, technology shift, generational]
Timing: Why now? [cost curve, regulation, behavior change, enabling technology]
3. Product Assessment
| Metric | Signal |
|--------|--------|
| Working product? | Demo > prototype > mockup > slide |
| Usage data? | DAU/MAU > signups > waitlist > nothing |
| User feedback? | Paying customers > design partners > surveys |
| Retention? | Any cohort data showing repeat usage |
| PMF indicators? | "Would be very disappointed" >40% (Sean Ellis test) |
4. Traction & Trajectory
Stage-appropriate traction:
Pre-seed: Problem validation, team assembled, prototype
Seed: MVP live, initial users, early retention signal
Series A: Clear PMF, $1-3M ARR or strong usage metrics, repeatable acquisition
Growth rate (for seed+):
MoM revenue growth: >15% = strong, 10-15% = good, <10% = concerning
User growth: >20% MoM for consumer, >10% for B2B
Decision Gate: At pre-seed/seed, invest in teams and markets. At Series A, require evidence of product-market fit. If there's no PMF signal at Series A, it's too early or the product isn't working.
Phase 2: Term Sheet Analysis
Goal: Evaluate and structure deal terms that balance investor protection with founder alignment.
Priced Round Mechanics
Pre-money valuation: $[X]M
Investment amount: $[X]M
Post-money valuation: $[X]M (pre + investment)
Investor ownership: [X]% (investment / post-money)
Option pool (pre-money): [X]% (typically 10-20%)
Creates dilution to founders BEFORE the investment
Effective pre-money to founders = Pre-money - Option pool value
SAFE / Convertible Note Mechanics
SAFE terms:
Amount: $[X]K
Valuation cap: $[X]M
Discount: [X]% (typically 15-25%)
Most Favored Nation: [Y/N]
Pro-rata rights: [Y/N]
Conversion at next priced round:
If priced round at $[X]M pre-money:
Cap conversion price: $[Cap] / [fully diluted shares]
Discount conversion: [Round price] × (1 - discount)
Converts at: LOWER of cap price and discount price
Shares issued: SAFE amount / conversion price
Key Term Sheet Provisions
| Term | Founder-Friendly | Investor-Friendly | Standard |
|------|-----------------|-------------------|----------|
| Liquidation preference | 1x non-participating | >1x or participating | 1x non-participating |
| Anti-dilution | Broad-based weighted avg | Full ratchet | Broad-based weighted avg |
| Board seats | Founder majority | Investor majority | 2 founders + 1 investor + 1 independent |
| Protective provisions | Narrow list | Extensive veto rights | Standard set (M&A, debt, new equity) |
| Drag-along | Supermajority (>66%) | Simple majority | Majority of preferred |
| Pay-to-play | None | Full ratchet to common | Broad-based conversion |
| Vesting | 4yr/1yr cliff (standard) | Re-vesting on new round | 4yr/1yr cliff |
Phase 3: Cap Table Modeling
Goal: Model ownership through current and future rounds showing dilution impact.
Pre-Round Cap Table:
| Holder | Shares | Ownership |
|--------|--------|-----------|
| Founder A | [X] | [X]% |
| Founder B | [X] | [X]% |
| Seed investors | [X] | [X]% |
| Option pool (allocated) | [X] | [X]% |
| Option pool (unallocated) | [X] | [X]% |
| SAFE holders | [X] (on conversion) | [X]% |
| Total | [X] | 100% |
Run: python3 tools/vc_returns.py for dilution waterfall
Dilution Through Future Rounds
| Event | Founder A | Founder B | Seed | Series A | Pool | New |
|-------|-----------|-----------|------|----------|------|-----|
| Founding | 50% | 50% | — | — | — | — |
| Option pool | 40% | 40% | — | — | 20% | — |
| Seed ($3M at $10M) | 31% | 31% | 23% | — | 15% | — |
| Series A ($10M at $40M) | 25% | 25% | 18% | 20% | 12% | — |
| Series B ($25M at $120M) | 21% | 21% | 15% | 17% | 15% | 11% |
Key insight: Founders who start at 50% each typically hold 15-25% by Series B. If founder ownership drops below 10% before profitability, alignment problems emerge.
Phase 4: Valuation Reasonableness
Goal: Assess whether the entry price gives sufficient return potential.
Entry valuation: $[X]M post-money
Target return: [X]x (fund strategy dependent)
Required exit value: $[X]M (entry × target return ÷ ownership at exit)
Implied exit revenue: $[X]M (at [X]x revenue multiple)
Is that revenue achievable? [assessment based on market size and growth]
Valuation benchmarks (2024-2025):
Pre-seed: $5-12M post-money
Seed: $10-25M post-money
Series A: $25-75M post-money (PMF required)
Red flags:
- Pre-seed at >$15M with no product
- Seed at >$30M with <$100K ARR
- Series A at >$80M with <$2M ARR
Quality Gates
Hard Constraints
- NEVER value an early-stage company on DCF — there are no reliable cash flows to discount
- NEVER accept a SAFE without understanding conversion mechanics at every possible valuation
- ALWAYS model the option pool shuffle — it's dilutive to founders, not investors
- ALWAYS check if the target return requires an unrealistic exit valuation
Common Pitfalls
- Anchoring on TAM — a $50B TAM means nothing if the startup can capture $5M
- Ignoring the option pool shuffle — a 20% pool on $10M pre-money means founders are really selling at $8M
- Participating preferred — at early stage this is punitive; push for non-participating
- Full ratchet anti-dilution — destroys founder incentives in a down round
- Overweighting traction, underweighting team — at pre-seed, team IS the investment
Related Skills
/vc-growth — Series B+ and growth-stage analysis/vc-fund — fund construction and portfolio math/pe-growth — growth equity for profitable companies/pitch-deck — building the fundraise deck
