When selling to a PE firm, entrepreneurs must realize the buyer's unit of optimization is their entire portfolio, not the single acquired company. A PE firm acts as an asset manager allocating resources across investments. This means decisions about your former company will be made in the context of their broader portfolio performance.

An under-discussed reality in venture capital is the predatory nature of insider bridge rounds. Struggling companies often face harsh terms from their existing investors, including 3x liquidation preferences, warrants, and ratchets that heavily penalize founders and employees.

Due to VC deal mechanics like liquidation preferences, a founder's take-home pay can be higher from a smaller, earlier acquisition. A $25M all-cash deal today might be more valuable to the founding team than a $125M exit a few years later after a significant VC round.

As creative M&A deals like IP licensing become common, traditional protections fail. Top startup talent now negotiates for "synthetic PREF rights," contractually ensuring their common shares pay out similarly to investor preferred shares in specific scenarios, securing their financial upside.

With longer hold periods and valuation pressure, many PE-backed executives' equity is worthless. To retain them, firms are structuring "management carve-outs"—a guaranteed bonus from sale proceeds paid out before the equity waterfall—ensuring executives are compensated for an exit even if their stock is underwater.

While often seen as aligning interests, giving sellers equity in the parent acquirer can backfire. It dilutes their risk on their specific business unit's performance, as their compensation becomes tied to the entire company's success. This can reduce focus on hitting their own unit's targets.

The firm requires sellers to roll 20-40% of their deal consideration into the acquirer's equity. This is a critical screening tool that goes beyond financial alignment, acting as a 'put your money where your mouth is' test to ensure sellers genuinely believe in the combined company's future vision.

Sequoia sometimes invests in two tranches at different valuations. This allows founders to market the round at the higher valuation, while Sequoia benefits from a lower, blended price. This practice, while common, can mislead employees and other investors about the true deal terms if not properly disclosed.

Chasing high, unrealized valuations is dangerous. It makes common stock prohibitively expensive, undermining the potential for life-changing wealth for employees—a key recruiting tool. It also narrows a company's strategic options, locking it into a high-stakes path where anything less than exceeding the last valuation is seen as failure.