Dear SaaStr: How Common Is It For Series A Investors To Get The Right to Block a Sale?
Pretty darn common.
It’s pretty close to standard for each Series of VC investors to have veto rights over a sale or change of control. These provisions are often baked into the protective rights that investors negotiate as part of their term sheets. They’re designed to ensure that investors have a say in major decisions that could significantly impact their returns, like selling the company.
As you scale, sometimes all the preferred together share these rights, at least partially. I.e., the protective provisions might just require 100% of all preferred to agree to a sales, not each series.
But even if these veto rights weren’t explicitly in the docs, most acquirers won’t move forward with a deal unless they have close to unanimous shareholder approval at least from the largest investors—usually 90% or more. So, practically speaking, investors often have at least partial de facto veto power anyway, even if it’s not formalized in the legal agreements.
And various state laws also give shareholder protections to classes and series of investors.
These provisions can create friction if there’s misalignment between the founders and investors. For example, if the founders want to sell but the investors think the company has more upside, those veto rights can block a deal. It’s one of the reasons why alignment with your investors on long-term goals is so critical.
In practice though, what they usually just do is force the conversation. There are plenty of stories of VCs who blocked a sale. But far more common is VCs that might not want to sell, realizing that if the founders insist on it — they usually have no choice. And also, most high quality VCs believe if the founders want to sell, you should sell.
Me? As long as I make money, I am OK with anything. I am also OK losing money if the founders 110% gave it their all. And treated everyone well and fairly.
More on this here in this deep dive:
