Dear Sister: How common is it to get the right to stop sales for the seed investor?
It is not very common to have a clear “veto”, but it is not heard from anyone. It is generally described as investors' consent rather than veto. And usually you need most investors' votes to sell, even if you do not need their consent. This is important.
Unless 80 % of the investors agree, it is very difficult to start. It doesn't matter what the documents say.
Here is the contract:
- In the era of M 3M seeds, most VCS will not clearly ask for the ability to stop the sale of future unless they, any major shares of property -, 15 % or more – and even then, is not standard.
- However, security provisions are often cooked in the term sheet, and they can give investors veto rights on major decisions, including the sale of the company.
- And protect different states and other laws.
- And finally, the recipients will need to agree on any sale at least all the investors. Often really 80 % -90 %.
What to see:
1. Standard VC Protective Supply
These are clauses that require investors approval for some steps, such as selling to the company, raising more funds, or issuing new shares. In the seed era, it is common for investors to obtain some protective provisions, but they should not be excessively restricted. Nevertheless, these rights are extremely standard and often include class votes on any sale.
2. Board control
If the Vice Chancellor is demanding the board seat and you have only one small board (such as 3 people), if they control a third or more votes, they can potentially stop sales. This is the reason why the dynamics of the founder friendly board must be maintained at the seed stage. A 3 -member board with 2 founders and 1 investors, okay, but if you later add any other investor, the balance changes here.
3. Received vs. Overching
Most seeds are VCS founding friends and will not put pressure on excessive control. They are betting on you to make a company, not trying micro management. But if you see ** first denial (ROFR) ** on sale or a clear veto on the right ** the term of the right, you need to push it back. These conditions can make it difficult to sell a company later or to communicate with other buyers.
What's right? The passage of a majority
If you have a number of investors, it is common for sale to require approval from most preferred shareholders. It is fair and ensures the alignment among your investors, but it should not give any VC the power to unilateral sales.
Saying that, it is more common that not every series (seeds, A, B, C, etc.) is not for their protective provisions. Which will include votes on sales.
How to handle it:
- Raise the lower. The less you take, the less you will give up.
- Is a balanced board. The equivalent of your hat table. If you do, most will not back down.
- Ask someone in a term sheet. Push back on a control supply. If it only asks, you will often get it.
- Only large shareholders need board seats and specific rights. 10 or more, the buyer has the right to ask. Whoever buys 2 % or less is just one passenger.
- Don't cross the line. Remember that people are giving you millions of dollars. The determination is going back to him.
Recently. , A VC should not have the ability to stop sales – unless they are a big stakeholder, and nevertheless, this is something you can carefully discuss.
Remember: If you don't pick up too much, most VCS are fine with any sales where they make money. And no one will be happy if they don't.
And once you pick up a ton, the stake increases. As they need.
In most cases it is very easy.
https://www.youtube.com/watch?v=r9frdqcirau
A related post here:
Can you sell your startup below the last round price? Maybe it's more common today.
