2. Control Terms

With respect to control, the key issue is the following:

  • Entrepreneurs want to have control over the development over the business. To the entrepreneur, control is particularly valuable when the company is on track and performing well.
  • The VCs, in turn, want to ensure high returns. To them, control is particularly valuable if things are not going so well. They want to be able to intervene and (try to) turn the company around.

  

These considerations call for a dynamic allocation of control. We should structure contracts such that they allocate control to the party that has the highest benefits and expertise in exercising that control. This can be achieved with the following deal elements:

  • Voting rights (and Protective Provisions)
  • Information rights
  • Board representation
  • Milestones.