How do startup founders protect their company from investors in the shareholders’ agreement?
Should they? Protect from what?? Seriously, think about it for a moment. The startup community is flooded with people who ‘don’t want VC,’ think, ‘investors will take over,’ and fear the influence or control of investors.
This paranoia is a problem in the startup ecosystem because you can’t (or won’t) effectively consider investors if you start afraid that they’ll take over. Will they? Should they? Is that really a bad thing if they do?
Let me ask you something, if you are taking on investors (who, as investors, own the business with you), I presume you want an exceptional return on everyone’s investment of time and effort, yes?
You have invested a lot of time, work, and likely some money, and you want a lot of wealth from that, correct?
Do you think they don’t want the same??
Now tell me, do you have a greater priority? Is it more important to you that you, say, remain in charge? Why???
Is it more important to you that you keep the job? Why? If you can instead get wealthy in the process, why is a mere job so important?
Is it that you want to keep your baby? That’s a natural and understandable tendency. Maybe, control everything and be the boss??
Now one more thing to noodle on. Why would anyone give you money (invest in the startup), when your priority isn’t delivering the best return possible?
Let’s play this out, you call me…[Action!]
“Hey Paul, I’d like you to invest a million dollars for 30% of the company. We’re crushing it!”
I reply, “hey internet person! Good to hear from you, I’d love to invest in you! The way you read my article is so exceptional that you must be a great investment. How could I not?!”
“Okay, great Paul, thanks! Oh, one thing though, um, you can’t replace me, you can’t tell me what to do, you can’t take over, you can’t sell the company, you can’t tell anyone anything.”
My reply, “so, you just want my money, I get to own some of the startup, and then, you want to do whatever you want, and I just hope it works out for the best. That sound about right? That, you have my money, I own part of the company (just as you do), but I don’t get any controlling interest, and you do whatever you want.”
“Yeah, sounds great!” you exclaim.
Me, “… … … … fricken a ! Where do I sign up?!”[And scene]
Okay, so I embellished the last part because let’s be frank, there is no way I’d take the deal.
- If you want free, few strings attached money, file for a grant.
- If you want to give a little up but not lose control, call a bank.
- If you want investors, they OWN part of the company, just as you do, and for that, just as you have, they get a say. If you don’t want that, that’s fine, no one makes you take money from anyone, just don’t waste investors’ time, please.
The whole notion that “I’m afraid of investors because they’ll take over my company… to get a better financial return on their investment,” doesn’t make any sense at all. You should want the same outcome and will do what’s best to achieve that — or you don’t want investors.[image created by Dall-E 2, an AI system that can create realistic images and art from a description in natural language]