The Paper Tigers of Venture Capital

In venture, conviction isn't what you say, it's what you do when the market dips.

"Never hate your enemies, it affects your judgment." - Michael Corleone, The Godfather Part III (1990)

As a founder turned investor, I've seen one betrayal that reveals more about character than any pitch deck: retrading, when a VC changes a signed term sheet after the founder has stopped fundraising.

"We still love the deal, but we need to revisit the valuation."

The email arrives with forced casualness, suggesting a minor adjustment rather than what it is: covenant-breaking. In venture capital, trust compounds faster than capital and erodes just as quickly.

The pattern is always the same. A VC, eager to win a deal, rushes out a term sheet before completing diligence. The founder stops fundraising. Weeks pass. The investor stalls. Then "concerns" materialize, often about issues visible before signing, and they demand a lower valuation.

Last quarter I watched a fellow founder get term-sheet-slapped by a Tier 1 firm. Six weeks post-signature, days before close, they cut the valuation 30% with zero material business changes. The founder's runway was running thin. Only their conviction had wavered, proving it was never conviction, just convenience.

With cash dwindling and no backup investors, most founders cave. The strong-arming gets dressed up as prudence and fiduciary duty. It's a premeditated shakedown designed from signature day.

Here's what these paper tigers miss: they think they've optimized one deal when they've actually broadcast untrustworthiness across the entire ecosystem. Founders who get retraded don't forget. They quietly track which firms break their word, and that knowledge spreads naturally.

The community remembers. Founders text each other warnings. Group chats light up with "avoid X firm" messages. They remember who pulled term sheets, who moved goalposts, who disappeared when it mattered.

The best founders have options and choose investors who show character under pressure, not just during bull markets. When given the choice between a firm with sketchy practices offering premium valuation versus an honorable firm at a discount, smart money chooses honor. Every. Time.

Term sheet retraders always use the same script: "The macro shifted." "Market conditions changed." "Partners raised concerns." "We're being disciplined." Pure rationalization. Do your diligence before you commit, not after. If macro concerns keep you up at night, price them in upfront.¹

The practice exposes twisted logic: treating term sheets as options rather than commitments. It's the financial equivalent of proposing marriage to keep someone off the dating market while you keep shopping.

The most successful investors build multi-decade portfolios where founder trust is the only currency that matters. Marginal ownership gains from retrading get dwarfed by exclusion from tomorrow's unicorns. One Stripe or Airbnb makes up for a thousand optimized Series As.

There's a reason the most respected firms honor commitments even when it hurts. They know VC is reputation-first, returns-second. Firms that keep their word consistently outperform over time. Not coincidence.

Smart founders now do reverse diligence calls. "How did Firm X handle their last down round?" "Did they stick to terms when things got bumpy?" The answers spread faster than term sheets.

Here's my tell for founders: term sheet too fast plus close dragging equals trouble brewing. That gap between eager signing and delayed execution is where trust dies and gets replaced by leverage games.

The venture business is built on trust borrowed against future performance. Break that covenant once, and you're marked. The ecosystem has a long memory.

Founders remember.

1. Often, it's the junior partner lap dog VC who delivers the retrade news, sent by a senior partner too cowardly to break their own word directly. It's hazing disguised as delegation, forcing the junior to torch their reputation while the decision-maker keeps their hands clean.