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Entries Tagged as 'Protective Provisions'

Control is a one way street

June 2nd, 2008 · 1 Comment

Summary: Control is a one way street that runs towards investors. Control doesn’t run backwards toward founders or common stockholders. In each round of financing, the percentage of investor board seats goes up (or stays the same). Once the investors have more board seats than the common, you’ve lost control of the board and you’re [...]

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Learn more about: Board of Directors · Protective Provisions

Trust, but verify: Why investors want control

January 30th, 2008 · 2 Comments

“Trust, but verify.”
– Ronald Reagan
Summary: Investors trust the entrepreneurs they back. But they verify their expectations with contracts and control. You should do the same—with the same tools investors use: contracts and control.
Why do investors want to control their investments through board seats and protective provisions? Shouldn’t they just give entrepreneurs bags of money and [...]

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Learn more about: Board of Directors · Case Studies · Protective Provisions

What’s the biggest mistake entrepreneurs make?

October 14th, 2007 · No Comments

Q: What’s the biggest mistake entrepreneurs make when they’re raising money?
Entrepreneurs focus on valuation when they should be focusing on controlling the company through board control and limited protective provisions.
Valuation is temporary, control is forever. For example, the valuation of your company is irrelevant if the board terminates you and you lose your unvested stock.
The [...]

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Learn more about: Auctions · Board of Directors · Protective Provisions · VC Industry · Valuation

Why do investors want protective provisions?

August 2nd, 2007 · 6 Comments

“AOL almost sold to Compuserve in 1991 for $60M. The VCs wanted to sell. [Steve] Case won by 1 vote. 10 years later, [AOL was] worth $100 billion.”
– Mark Pincus
Summary: Protective provisions let preferred shareholders veto certain actions, such as selling the company or raising capital. They protect the preferred, who are minority shareholders, from [...]

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Learn more about: Board of Directors · Future Financings · M&A · Protective Provisions

What are supra pro rata rights?

June 17th, 2007 · 3 Comments

I read, like, and regularly disagree with a great blog called Ask the VC . They recently answered a question about supra pro rata rights—here are our thoughts on the topic.
Q: Can you explain what supra pro-rata is? It seems to be showing up in some VC term sheets now. What’s the impact on the [...]

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Learn more about: Pro Rata · Protective Provisions · Valuation