The Funded Founder Institute Posts "Class F" Startup Documents
I got a tip from @Pietari that another set of startup documents were released today. The Funded Founder Institute just released a very founder-favorable set of startup documents centered around “Class F Common Stock.”
The Class F Common offers founders various protective provisions such as:
-2 to 1 Board votes per founder relative to non-founder board members
-10 to 1 share votes relative to regular common shares
-Monthly vesting with no cliff
-Approval rights on new investments, liquidity events, increases to Board size, etc.
Why did the Institute create Class F? They answer this question on their website (www.founderinstitute.com):
Since the internet bubble burst, a number of enhanced protective provisions have been introduced into preferred stock. As an example, “participating preferred” has become commonplace since the last crash. Meanwhile, there have been comparatively few advances to protect founders, who are forced to accept historically bad investment terms and being terminated from their companies by investors in the current economic environment.
They also go on to claim:
Class F is [the] most founder-centric shares created to date, including more generous than the infamous founder agreements of Larry and Sergey at Google. Companies in the Institute also have a warrant that requires permission from the Institute when a founder is removed from the Board of Directors, or the company will suffer a financial penalty.
The set of startup documents include the Certificate of Incorporation and the Stock Purchase Agreement, along with Institute-specific Founders Agreement and Warrant. Check them out here.
About the Author
Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. Click here to learn more about his practice.
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Please consider subscribing to The Startup Lawyer, following @startuplawyer on Twitter, or contact Ryan directly.6 Responses
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Sylvestor says:
Hi
I want to know some facts from the VC Angle:
1. How will this change of accepting Class F stock affect VC’s if they have such high voting right & board rights. What will be the role of a VC who has a board seat if the founders blindly keep passing all the bills just because they have more than 50% control at all times.
2. How can we have even play
3. I feel Class F is too founder friendly, how can we alter the voting power & board votes ratio to be in such a way that can have a level playing field
4. Understand that the CEO’s are getting laid off with out reason. We could have a founder friendly clause saying that he will not be sacked for a period of time rather than making it so founder friendly
5. In a classic example where a VC invests $4MM of a $10MM company for 40% stakes & if the company gets sold for $100MM. How much will the VC make out of it if we go by considering the Class F stock -
Thanks Ryan. I would be looking forward to your reply Sylvestor's questions. That is very important from investor's perspective.
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Thanks Ryan. I would be looking forward to your reply Sylvestor's questions. That is very important from investor's perspective.
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Sylvestor:
1. That's the tension with class F stock. It's beens suggested that some VCs have accepted it, but I have reservations they would not also put in typical protective provisions in their series A stock.
2. – 3. I think trying to come up with a level playing field for all startup-VC transactions is going to be futile. The best way to level the playing field is to have leverage.
4. Startup CEO's get sacked because they may not be the right person to take the startup from Series A to Exit. It really just depends on the CEO/Founder.
5. This depends on the economic rights of the series A (i.e. liquidation preference, etc.) A VC is not going to receive Common Stock as their investment.
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Sylvestor:
1. That's the tension with class F stock. It's beens suggested that some VCs have accepted it, but I have reservations they would not also put in typical protective provisions in their series A stock.
2. – 3. I think trying to come up with a level playing field for all startup-VC transactions is going to be futile. The best way to level the playing field is to have leverage.
4. Startup CEO's get sacked because they may not be the right person to take the startup from Series A to Exit. It really just depends on the CEO/Founder.
5. This depends on the economic rights of the series A (i.e. liquidation preference, etc.) A VC is not going to receive Common Stock as their investment.
Hi
I want to know some facts from the VC Angle:
1. How will this change of accepting Class F stock affect VC’s if they have such high voting right & board rights. What will be the role of a VC who has a board seat if the founders blindly keep passing all the bills just because they have more than 50% control at all times.
2. How can we have even play
3. I feel Class F is too founder friendly, how can we alter the voting power & board votes ratio to be in such a way that can have a level playing field
4. Understand that the CEO’s are getting laid off with out reason. We could have a founder friendly clause saying that he will not be sacked for a period of time rather than making it so founder friendly
5. In a classic example where a VC invests $4MM of a $10MM company for 40% stakes & if the company gets sold for $100MM. How much will the VC make out of it if we go by considering the Class F stock