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Finding “stinky clauses” in legal investment documents

Berkonomics

Here’s the problem: Investors sometimes join into investment rounds that have been pre–negotiated by others, receiving the paperwork already created by attorneys from that negotiation. How do you confront the investors who have already agreed to terms and even perhaps signed their documents? Passively sign and hope for the best?

Invest 156
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What are the costs of taking investor money?

Berkonomics

Email readers, continue here…] Almost always, professional investors, including angel groups and venture capitalists, also require at least one seat on the corporate board. A seat on your board?

Sales 156
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Several more real costs of taking outsider investments.

Berkonomics

The investor organization is granted the seat as long as the investment remains, and the documents often name the first representative assigned by the investor group to the position. Email readers, continue here…] In later insights, we will explore the legal and ethical responsibilities of board members.

Invest 243
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What do you give up when you take outside investors?

Berkonomics

To protect against such an event, almost every professional investor includes a clause in the investment documents which allow the investor to “put” the stock back to the company after five years, requiring the company to pay back the investment plus dividends accrued during the term of the investment. Draconian terms?

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Fight for balance on your board!

Berkonomics

Email readers, continue here…] Some board members find themselves debating whether there should be an expansion from five to seven, from seven to nine or more to allow for such a mixture of protective seats created by the investment documents and balance with outside board members. How about the size of the board?

Class 156
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Should board members be elected “for life?”

Berkonomics

We have investigated the restrictions imposed by investment documents and the obvious need to keep continuity on the board with the retention of the CEO position at the very least. Email readers, continue here…] That’s appropriate for non-profits for the reasons listed above. How about staggered four-year terms?

Email 156
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Your board should protect you!

Berkonomics

Even venture capitalists who sit on boards where they have significant investments often forget this point. They write in their investment documents that they will occupy a seat on the board for as long as they are invested in the company, thinking of this as a protection for their investment and tool for them to influence growth.

Class 282