Your VC dont have as much control as you think

In the Series A and B rounds we see, entrepreneurs worry a lot about losing control of their board and thereby the company to VC/investors.  Rightly so: it’s your baby and you want to make sure no one can take it away from you.  That said, even when VC control your board, your stock, or both, there are certain things that they really can’t do without you, even if legal docs allow it.  Below are a few examples:

 

-Sell the business.  If the CEO and core team are not on board with selling the business, then it’s exceptionally hard for a VC to do so.  The reasons are numerous: i) the CEO, not the VC, is the one that acquirers want to talk to about buying the business so if you don’t want to have the conversation, it’s easy to botch; ii) no acquirer wants to buy a business from a CEO or core team that isn’t intent on selling; iii) almost all tech acquisitions require the CEO and core team to stay on to help integrate the business. You and your team may even be one of the biggest reasons you’re being bought.  If you don’t want to stay on with an acquirer, then a deal isn’t getting done.  

 

-Prevent you from selling the business.  If you want to sell the business but your investors do not, you will win that conversation.  A company with an unhappy CEO or a CEO that is ready to exit is not a company that will perform well.  Board meetings will feel toxic and any excitement about the business will be lost if the CEO and investors are at odds on this topic. 

 

-Firing you.  This rule doesn’t apply as much if you’re a large company, but if you’re a Series B stage business or smaller with less than $3mm of revenue per year, it’s very hard to fire you.  The issues that concern investors are what happens to the morale of the other employees? Do we lose other employees due to loyalty? Who wants to run a small company where the investors just fired the CEO? How will customers react when they realize the leader is gone? How will competitors spin this firing to steal customers in the market place? Firing a founding CEO is exceptionally difficult, especially if you’re critical to the Company’s culture, customers, and growth.

 

While a board that is investor/VC controlled can do anything as governed by the docs, many of those things that are the scariest such as firing you and selling the business are unrealistic or impossible without the CEO being on the same page.  Worry less about giving up control of the board room and instead worry more about bringing in quality board members that can help you.     

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