Back To The Basics | Post #1

Author: Luiza Rey

Introduction

I’m starting a new series called Back to the Basics — about the small contract details that quietly break startups.

I see this all the time when working with founders, especially now that AI tools are helping generate contracts in seconds — sometimes without anyone checking what’s actually inside them.

𝘠𝘰𝘶𝘳 𝘉𝟤𝘉 𝘳𝘦𝘷𝘦𝘯𝘶𝘦 𝘮𝘪𝘨𝘩𝘵 𝘯𝘰𝘵 𝘣𝘦 𝘢𝘴 “𝘭𝘰𝘤𝘬𝘦𝘥 𝘪𝘯” 𝘢𝘴 𝘺𝘰𝘶 𝘵𝘩𝘪𝘯𝘬.

If your company sells long-term B2B contracts and you show investors your Annual Recurring Revenue (ARR) to prove steady income — read this carefully.

One small sentence could be making your numbers meaningless:

“𝘛𝘩𝘪𝘴 𝘈𝘨𝘳𝘦𝘦𝘮𝘦𝘯𝘵 𝘮𝘢𝘺 𝘣𝘦 𝘵𝘦𝘳𝘮𝘪𝘯𝘢𝘵𝘦𝘥 𝘣𝘺 𝘦𝘪𝘵𝘩𝘦𝘳 𝘱𝘢𝘳𝘵𝘺 𝘢𝘵 𝘢𝘯𝘺 𝘵𝘪𝘮𝘦, 𝘧𝘰𝘳 𝘢𝘯𝘺 𝘳𝘦𝘢𝘴𝘰𝘯, 𝘸𝘪𝘵𝘩 𝟥𝟢 𝘥𝘢𝘺𝘴’ 𝘯𝘰𝘵𝘪𝘤𝘦.”

That’s what lawyers call a termination for convenience clause.

And it means:

1. Your “12-month” client deal can actually end tomorrow.

2. Your ARR isn’t guaranteed.

3. Your investor pitch might be built on sand.

Real Example

A Lisbon-based SaaS company signed a €250,000 annual deal with a corporate client.

The investor deck proudly listed that revenue as “locked.”

Six months in, the client exercised the termination-for-convenience clause.

The deal ended. The client left. The startup lost its biggest account — and had to explain to investors why “annual recurring revenue” wasn’t actually recurring.

How To Fix It

If you rely on long-term revenue, make sure your contracts actually reflect that.

✅ Set a minimum commitment period (for example, 6 or 12 months).

✅ Let clients cancel only after that period, or for specific reasons (like performance issues).

✅ If you offer flexibility, make the limits clear — longer notice, clear KPIs, or milestones.

Termination for convenience is fine — 𝘸𝘩𝘦𝘯 𝘺𝘰𝘶𝘳 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘮𝘰𝘥𝘦𝘭 𝘥𝘦𝘱𝘦𝘯𝘥𝘴 𝘰𝘯 𝘧𝘭𝘦𝘹𝘪𝘣𝘪𝘭𝘪𝘵𝘺.

But if you promise investors or partners “locked” revenue, your contracts need to be locked too.

By Luiza Castro Rey