Founders FAQ #7

The dups Founders’ FAQ is a compilation of the most common questions founders ask us about their startup, their fundraising or their relationship with investors.

What if, after the fundraising, the investors think they can manage without me and decide to put an end to my executive role within the company? Is there something I can do to avoid losing everything?

This is a major concern for founders who become minority shareholders after raising funds.

Some investors want to get rid of the active founders when the critical phase is over and the product is on track, leaving the founders in the position of inactive minority shareholders in the company they founded.

This can of course cause a lot of frustration and sometimes leads to conflict situations.

As a founder, what attitude should you adopt in order to protect yourself?

• You might be able to look on the bright side: one of the company’s goals is to create value and the investor might think that someone else could do it better than you. In that case, you could make a profit in the long run, depending on the investors’ investment horizon. In the meantime, you could even focus on other projects.

• Another option is to anticipate this when negotiating the fundraising and use some of these provisions:
• • the founder’s management agreement may be terminated exclusively under certain circumstances and/or after a given time period;
  • qualified majorities are required to terminate the founder’s management agreement;
  • if the founder’s management agreement is terminated, the founders get a “put option”: they can force the other shareholders to buy their shares, at a price determined by an expert or a valuation formula provided in the shareholders agreement or the articles of association.

You have a question about your founder’s role after the fundraising or other topics? Let’s have a chat, we’d be happy to help!