When Things Are Bad, Voting Rights Matter

July 2, 2014

in Fundraising, Legal, Ownership

Voting rights matter in a startup. They matter in obvious ways, like deciding whether or not to:

  • do M&A transactions
  • hire/fire someone on the management team
  • raise more money

But when things are really terrible, voting rights matter too. There have been times in our business when I was glad we did not have external voting investors or non-participating founders. They may have seen the gloomy situations and decided to cut bait and recoup at least the cash in the bank. That could have been a very likely scenario.

I’ve written before about how VC-funded companies in our market do not fare well.

When contemplating handing equity over to non-founders, think long and hard about how voting rights matter when things are bad.

It is really tough for external non-fulltime people to understand and quantify the stamina the existing team has in them to pull through the bad times, so I’m grateful we had that decision under our control when things have been rough.

I don’t think raising VC money is a bad idea. It is the best option to grow and scale a quickly growing business; better than dragging your organic feet and losing ground to competitors. Non-participating founders though are much more worrisome, especially when their voting rights are weighty enough to influence outcomes.

What are your thoughts on how voting rights matter when things are bad?

 

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