How do startup boards and their seats work and how does a CEO set themselves up to retain control of the board when incorporating?

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JASON LEMKIN

Let me try to simplify, outliers aside:

1. Generally, “proportionate” boards are fair, and easy to agree to. I.e., if the investors own 20%, and founders 80%, then investors get 1 board seat, that’s it. Founders can have 2 (or more) now, etc. If the investors own 50%, then split the board 50:50 (often with an outside to break a tie).’

So …

1. The best way to retain control is not to sell too much. I know this sounds cute, but it isn’t. If you sell 80% of the company in 5 rounds, you won’t control the board, usually.

And, where you can, choose investors you trust.

Corner cases aside, this is the best most of us can do.

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Published on May 24, 2016
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