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Boards are dangerous to founder/CEOs

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Re: Boards are dangerous to founder/CEOs

#121

Post by bluGill »

nowherebeen wrote: post #83
ganeumann wrote: post #40

Earlier quoted context omitted.

Very few things in a VC-backed startup require a shareholder vote. Firing the CEO is not one of them (this is a board vote.) Electing directors to the board is not one of them (this is usually the subject of a voting agreement that ensures board representation by the VCs.) Let's say the company raises money from VC1, who buys 20%, leaving you with 80%. The contracts add VC1 and an independent to the board, alongside…

How is that possible? Shouldn't it be the number of voting shares you hold? I thought that was the entire reason for share classes. It can't be based on the number of bored members alone, can it?

Not all shares have the same voting rights. The VC might buy 20% of the company, but 50% of the voting rights. VC2 might buy another 20%, but get a different share of the rights.

Re: Boards are dangerous to founder/CEOs

#122

Post by PragmaticPulp »

somerando7 wrote: post #75
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for private companies?

The board seat is a part of the negotiation in larger rounds. Depending on how much leverage the company has in the negotiation, they can argue for a mutually agreeable 3rd party board seat. In many cases this ends up being someone favorable to the CEO, or at least less directly aligned with the investors.

Some companies have grown quite large with small boards. The company will need a certain number of people to make up the board, though, so it helps to start identifying such people early.

Re: Boards are dangerous to founder/CEOs

#124

Post by PeterisP »

daenz wrote: post #42

I'm happy and appreciative that this advice exists, but as a tech person who just wants to build new things, it makes running a company sound like a massive drain on the psyche.

Sure, it is - running a company is a whole full different and very intense profession that has little in common with a tech person building new things, you would have to focus on one over the other.

Re: Boards are dangerous to founder/CEOs

#125

Post by kelnos »

somerando7 wrote: post #75
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for private companies?

> is it impossible to get VC levels of investment without giving away board seats?

Not impossible, but extremely difficult. You need to already be successful to a degree that investors are fighting each other to give you money, to the point where they will still give you that money without asking for any amount of control of or oversight over the company. Google[0] and Facebook founders managed to do this (though not through board composition, but through stock classification and voting rights), but 99.9% of other founders will not have that kind of clout.

> Is a board even required for private companies?

I believe some state laws around incorporation require them, but otherwise it's just a standard way of doing things that a company will lay out in its charter/by-laws. You're going to have a really hard time convincing a VC to give you money if you tell them that you're not going to have a board of directors. Even if you present an alternative structure that gives the VC some form of oversight, they will be (rightly) skeptical, since this is unproven ground and they will be (rightly) afraid that their lack of understanding of your unique structure will come back to bite them later.

[9] I do think Page and Brin retaining control of Google was especially impressive, considering that their early funding rounds happened during, and in the aftermath of, the original dot-com bust, when investors were probably pretty leery of funding tech companies.

Re: Boards are dangerous to founder/CEOs

#126

Post by doktorhladnjak »

gonehome wrote: post #101
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Can’t you structure things like Zuckerberg or Palantir and just have the founder retain unilateral company control?

In theory, yes. But even that is no guarantee. Travis Kalanick had control through supervoting shares at Uber, but the investors forced him to resign and passed governance changes that made all shares equal in voting power. Even with founders having voting power, it's possible for the board or investors to exert other leverage.

Re: Boards are dangerous to founder/CEOs

#127

Post by kelnos »

adtac wrote: post #70
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

>Then a year after I got fired the series A investor led the next round of funding and decided to value the company at $0, so I got diluted by 99.99% Was it made impossible for you to be an investor in that round? Could you have prevented 99.99% dilution that way?

It's hard to participate in a funding round when you don't have much money, as the parent says.

Re: Boards are dangerous to founder/CEOs

#128

Post by streetcat1 »

bluGill wrote: post #116
flenserboy wrote: post #58

1. Avoid going public if at all possible. 2. Avoid outside investors if at all possible. 3. Avoid having a board if at all possible. 4. Control the shares or the shares will control you.

That isn't always good advice. Often the money from going public is required to make it. You either go public, or someone else will take your idea, go public and use the money from it to eat your lunch and then you get nothing. Good ideas are easy. Unique good ideas are so rare as to be non-existent. Nearly all good ideas are obvious to anyone who knows the field and what can be done.

The market today is so big that many competitors can live side by side . At least in B2B. I mean there are hundreds of CRM companies.

You can have other companies eat your lunch. All you need is to get into a default alive state. I.e. have 5-10K MRR. The rest is nice to have. It should be possible in any billion dollar market.

Re: Boards are dangerous to founder/CEOs

#129

Post by jasode »

gonehome wrote: post #101
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Can’t you structure things like Zuckerberg or Palantir and just have the founder retain unilateral company control?

>Can’t you structure things like Zuckerberg or Palantir and just have the founder retain unilateral company control?

Fyi... Zuckerberg didn't "retain" unilateral control. He lost his 65% majority ownership control because it was reduced (diluted) to 40% when Peter Thiel invested in 2004.[1]

What eventually happened was that Zuckerberg later consolidated voting power from other shareholders like Sean Parker and Accel Partners.[2] Why would they give voting power to Zuckerberg?!? Because Zuckerberg was doing a good job running the company.

Yes, Facebook also later set up class B shares with 10x voting power for Zuckerberg. But investors won't accommodate founders with that structure unless the company is a big success.

So in short, MZ lost 65% control, and then eventually got majority voting power back after some business events. Even though he now only owns ~14% of Facebook, an article said his voting share was still at majority of ~58%.[3]

[1] Facebook ownership was divided between Zuckerberg, with 65%, Saverin, with 30%, and Moskovitz, with 5%. After the transaction, the new company was divided between Zuckerberg, with 40%, Saverin, with 24%, Moskovitz, with 16%, and Thiel with 9%. The rest, about 20%, went to an options pool for future employees. -- from : https://www.businessinsider.com/how-mark-zuckerberg-booted-h...

[2] https://venturebeat.com/2012/02/01/zuck-power-play/

[3] https://www.bloomberg.com/news/articles/2021-05-26/facebook-...

Re: Boards are dangerous to founder/CEOs

#130

Post by mooreds »

ksdale wrote: post #99

Once upon a time, I helped a group of friends start a company, and as we were going over the parts of the LLC agreement that outlined what would happen if the company dissolved as part of a fight, the entire group treated me like I was ridiculous for suggesting that they would get in a fight. I told them that if they were planning on staying friends forever, they didn't even need the LLC agreement, they could just pr…

Plan for the divorce during the honeymoon.

Then put the agreement in the safe. Two outcomes:

  * everything goes swimmingly: you've wasted a bit of time and paper
  * everything does not go well: hard decisions are already made
Before I co-founded a startup, I read the Nolo books on partnerships, especially the parts about dissolving them fairly. The details differ slightly if you have an LLC, C corp etc (as long as it is private) but the overarching themes are the same and so so important to consider.
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