Yup – many VCs are control freaks. And they love control terms. In this chapter we tell you which ones matter, why they matter, and what you should pay attention to. We also give you some advice on what is worth negotiating hard for, as well as what you shouldn’t worry about too much.
The terms we discussed in the preceding chapter define the economics of a deal; the next batch of terms define the control parameters of a deal. VCs care about control provisions in order to keep an eye on their investment as well as comply with certain federal tax statutes that are a result of the types of investors that invest in VC funds. While VCs often have less than 50 percent ownership of a company, they usually have a variety of control terms that effectively give them control of many activities of the company.
In this chapter we discuss the following terms: board of directors, protective provisions, drag-along rights, and conversion.
Once again, our friend Matt Blumberg from Return Path has a bunch of important sidebars where he talks about the terms from “The Entrepreneur’s Perspective.”