Questions

Should co-founders get preemptive (first-right-of-refusal) rights?

I am a co-founder of a startup where I am working as a software architect / developer (typical CTO unofficially). I am starting to feel that my partner has too much control and disregards most of my suggestions, even if they benefit the company. Recently I suggested that co-founders should have first-right-of-refusal rights in case the company needs to authorize more stocks to raise more money, but my partner rejects that idea outright. His argument is that those kind of co-founder rights are not standard in the startup world; and VC and Angel investors do not like that. However, I do not think so; even if it is true, we can negotiate with investors if they would not like to give preemptive rights to co-founders. How should the equity be split? Currently we have it split equally. Should I bring up changing this?

2answers

Hi,
I've helped a lot of entrepreneurs with partner issues.

The fact is that equity is divided in whatever way you negotiate. Rights such as first right of refusal are normally dealt with in the shareholder's agreement.

Certain clauses or rights can certainly be unattractive to investors but these agreements can always be amended. Again, it's what you manage to negotiate for yourself.

Arrange a call and I can help you with the specifics of your situation.

You may find these two videos of mine informative:
This one on partnership agreements https://youtu.be/WvLFlct227o
and this one on share structures https://youtu.be/1EjKjSAd1F8

Cheers

David Barnett


Answered 5 years ago

Investors generally have the first right to refuse if they mention it in the term sheet. You may change it at the time of term sheet drafting with mutual consent.


Answered 4 years ago

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