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 [...]
Entries Tagged as 'Protective Provisions'
Control is a one way street
June 2nd, 2008 · 1 Comment · Board of Directors, Protective Provisions
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Trust, but verify: Why investors want control
January 30th, 2008 · 3 Comments · Board of Directors, Case Studies, Protective Provisions
“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 [...]
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What's the biggest mistake entrepreneurs make?
October 14th, 2007 · 1 Comment · Auctions, Board of Directors, Protective Provisions, Valuation, VC Industry
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 [...]
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Why do investors want protective provisions?
August 2nd, 2007 · 6 Comments · Board of Directors, Future Financings, M&A, Protective Provisions
“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 [...]
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What are supra pro rata rights?
June 17th, 2007 · 3 Comments · Pro Rata, Protective Provisions, Valuation
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 [...]
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