72 board representatives), shareholder reserved matters (and the applicable majorities), information rights, pooling of minority stake investors, and so forth. Recent developments In tougher funding times, VC investors are increasingly demanding more favourable economic terms. Especially with regard to pro-rata rights, antidilution protection and liquidation preferences, the momentum has somewhat shifted to the benefit of VC investors: Investors increasingly (and successfully) demand “super” pro-rata rights, sometimes even for a right to pre-empt the entire financing round and acquire 100% of the new shares, which gives them a de-facto blocking right with respect to new investors. Anti-dilution protection provisions have returned to a more investor-friendly narrow-based weighted average calculation formula (sometimes coupled with “pay-to-play” provisions). And, as for liquidation preferences, although we are not quite near the re-introduction of participating liquidation preferences, multiples of 1.5x or higher have become quite common these days. As for control terms, there is a certain tendency to push towards a “strong“ board, i.e., a board that is equipped with the authority to appoint/remove managing directors, whereas other control-terms related terms have barely changed. Closing Remarks Despite multiple complexities and varying interests, VC Transactions can be handled and managed confidently by start-up founders – based on an organized and well-thought through (investment) process. Right from the start, start-up founders should be mindful about founder team dynamics and potential (unexpectedly premature) founder departures. The “right” allocation of founder equity plays an important role in adequately incentivizing the founders and honoring the different contributions by each founder. Founders should keep a close eye on a “clean” and balanced cap table and try to avoid too many small-stake investments (although, of course, especially at the beginning there is a strong tendency to secure as many investments as possible). Conceding on certain deal terms might pave the way to secure an investment, but, on the other hand, some concessions (e.g., participating liquidation preferences) can be / become too high of a price to pay. And, to capture the investment at the best possible (valuation) terms for the company, start-up founders should actually try to raise money as late as possible, but also as soon as necessary (to avoid running into liquidity difficulties).
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