This term designs one of the obligations Board members must respect at all times — mainly, take decisions that are in the best interest of the company and its common stockholders.
Lawyers. Chances are you won’t need one to do your articles of incorporation (many chatbot solutions and online templates will help.) But you ABSOLUTELY need a lawyer to help with term sheets and shareholders agreements. Providing he or she is used to VC deals, which are very particular.
Convertible note. A debt instrument often used in seed rounds, which converts into equity under pre-agreed conditions. Now mostly replaced by SAFEs and their variants.
Board Seat. Investors such as Peter Gregory want to have a say on the startup’s critical strategic decisions. Despite having only 5% of the equity, financial investors can block a lot of decisions. The trick for Founders is to keep a majority of the Board as long as they are majority shareholders (hint: don’t pick your Board members at a party.)
Compression plays. Richard is stunned to learn that Peter Gregory invested in half-a-dozen potential competitors. He should have done is due diligence! Note: most institutional VCs would avoid having competing companies in the same fund’s portfolio. At least before they pivot.
Rest and Vest. Founders of companies that were acquired by Hooli need to stay until a given date (usually a couple of years down the line) to be able to cash in on their options — if they were paid in Hooli shares — or receive their earn-out money.
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