Dear SaaStr: How Do I Know if a VC Is Asking For Too Much Control in a Financing Round?
Look out for:
- A board of directors that isn’t roughly proportional to the equity owned & purchased. If a VC is buying 15%, 1 board seat makes sense for the fund. If they are buying 5%? Not so much.
- Seed investors that want too much control. If a seed investor buys double-digits, they may earn a board seat. But they shouldn’t have control. They shouldn’t be fighting how many board seats the founders have, or much around board structure.
- “Tranched” funding where a lot of the funding is contingent on hitting later milestones. The odds you get the second check are low unless you execute to perfection, but it locks up the company.
- Asking for any veto rights or their own “protection provisions” if they don’t buy a majority of the shares in a given round. A VC that funds most of a Series A, B, C, etc. will generally get certain veto rights. But VCs that don’t lead the round shouldn’t get any, generally speaking.
But maybe don’t fight a board structure in general … that is roughly — roughly — proportionate to the cap table.
So roughly — you are going to give away a board seat to any investor that buys 10% or more.
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