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What power do investors have if they don't have board control? All the percentage equity stuff seems irrelevant.

by pclark 14y ago

eksith 14y ago
The amount of hand-holding a VC has to do is often inversely proportional to a startup's profitability. Startups that do make it big, usually stay big when the folks at the helm know what to do or can at least quickly figure out what to do by the seat of their pants. That's quite a bit harder when there's an additional layer of bureaucracy involved, so investors can choose to stay back and let the founders do their thing or founders decide to get fewer investors involved in the fist place to ensure their freedom to operate with some modicum of independence. To be fair, percentage equity (or "Power") can be expressed in ways other than direct control of a company's heading.
spodek 14y ago
There are many ways to have influence. A few, for example - They can limit the company's ability to raise future funds - They can convert equity to debt if it's convertible. If the company can't pay back the debt they can gain more control - They can have rights to control hiring and firing - They may have voting rights with the equity - They have a voice with the public, press, customers, hiring candidates - They have rights as minority shareholders - Various clawback and other provisions may raise or lower their equity stakes, giving them more or less control - They have access to information they wouldn't have otherwise Besides contractual and legal rights, they have relationships with management. Presumably they can just talk to management and influence them that way. Also, power can also be used to act in concert with the company, which is augmented by their inside information and made more credible by their shared interest. They can - Recommend candidates for hiring - Recommend clients - Inform about competition - Advise - Reinvest - Recommend other investors Etc etc

What power do investors have if they don't have board control? All the percentage equity stuff seems irrelevant.

by pclark 14y ago

What power do investors have if they don't have board control? All the percentage equity stuff seems irrelevant.

The amount of hand-holding a VC has to do is often inversely proportional to a startup's profitability. Startups that do make it big, usually stay big when the folks at the helm know what to do or can at least quickly figure out what to do by the seat of their pants. That's quite a bit harder when there's an additional layer of bureaucracy involved, so investors can choose to stay back and let the founders do their thing or founders decide to get fewer investors involved in the fist place to ensure their freedom to operate with some modicum of independence. To be fair, percentage equity (or "Power") can be expressed in ways other than direct control of a company's heading.

spodek 14y ago

There are many ways to have influence. A few, for example - They can limit the company's ability to raise future funds - They can convert equity to debt if it's convertible. If the company can't pay back the debt they can gain more control - They can have rights to control hiring and firing - They may have voting rights with the equity - They have a voice with the public, press, customers, hiring candidates - They have rights as minority shareholders - Various clawback and other provisions may raise or lower their equity stakes, giving them more or less control - They have access to information they wouldn't have otherwise Besides contractual and legal rights, they have relationships with management. Presumably they can just talk to management and influence them that way. Also, power can also be used to act in concert with the company, which is augmented by their inside information and made more credible by their shared interest. They can - Recommend candidates for hiring - Recommend clients - Inform about competition - Advise - Reinvest - Recommend other investors Etc etc