"World of DaaS" The LM Brief: Conditional Voting Rights in VC Term Sheets
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Aug 18, 2025 This discussion reveals a crucial yet hidden clause in venture capital term sheets that can strip founders of their voting rights after they leave their companies. It highlights the difference between ownership and actual decision-making power, urging founders to stay alert. The hosts emphasize fostering trust in founder-investor relationships instead of relying solely on legal restrictions. Innovative approaches are suggested for restoring voting rights, aiming to shift the narrative to empower founders for better collaboration moving forward.
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Employment-Tied Voting Can Remove Founder Voice
- Many term sheets include voting agreements that tie voting power to providing services for the company.
- That language can silently remove a founder's ability to elect directors or block deals if they stop working there.
Ownership Without Political Power
- Losing voting rights can leave founders as shareholders without political power over their company.
- Founders can still own equity yet have no vote on major decisions or director elections.
Clause Is Designed For Rare 'Rogue' Risks
- VCs insert these clauses to guard against rare 'rogue founder' scenarios that might block exits or financings.
- The clause is designed as a protective control for investors, not as routine governance.