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What happens when the board member designated by a VC firm moves to another VC firm?

Is the board member replaced by another partner of the firm and does the startup have a say in the choice of the partner? And: does it happen often?

6 Replies

Neil Gordon
1
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Neil Gordon Advisor
Board Member, Corporate Finance Advisor and Strategy Consultant
The answer is likely found in a reading of the bylaws and the agreements between the company and the investor(s). A designated director would most likely resign under the circumstances you describe, but if not, the documents would determine the outcome, as they would if there's a vacancy.
David Still
2
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David Still Advisor
Founder of Start-ups, Entrepreneur, Financier and Advisor

Is the board member replaced by another partner of the firm (Answer: yes) and does the startup have a say in the choice of the partner? (Answer: ultimately no) And: does it happen often? (Answer: yes) If the VC has voting control or even a substantial ownership percentage, then forget the agreements. The agreements exist only as a starting point for an argument, which 99 percent of the time you will lose. You are not going to sue the money machine because of a Board Member. Been there ...

Peter Kestenbaum
1
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Peter Kestenbaum Entrepreneur
Advisor, Investor, Mentor to Emerging firms
9.5 times out of 10, your term sheet says that the board seat representative is just that a representative of the investment firm and hence can be nominated or replaced by the firm. The one case that sometimes can be up for grabs is if the deal was syndicated and the syndicator has rights... usually though the syndicator already holds the seat and the other investors have observer status pk
Mario Naim
1
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Mario Naim Advisor
Business Lawyer

In a preferred stock Series A round, the right for investors to elect representatives to the Board is typically set forth in a separate voting agreement and in the certificate of incorporation. Upon resignation of the investors' nominee, the holders of Series A Preferred Stock will typically fill the vacancy by separate class vote or written consent adopted by the preferred stockholders, or if there are any investors' representatives left on the board, by such remaining directors. See the NVCA model certificate of incorporation, S. 3.2, here:http://nvca.org/resources/model-legal-documents/

To complete my answer: not only does the company have no discretion over the matter, the vote of its board representatives and its founders/shareholders is not needed.


Mike Robinson
0
0
Mike Robinson Entrepreneur
Chief Commercial Officer at VideoEngager
@David has it right.In one of my previous ventures, wehad 3 VCs change their board reps (over a few years) and one VC changed board reps twice. This wasn't even due to someone leaving the firm - just a shuffling of board duties within the VC firm. That 2nd change became the catalyst for a major C-suite shakeup, BTW.
Mark Son
0
0
Mark Son Entrepreneur
Investor / Entrepreneur
SIMPLE...

Remove the guy/gal and replace him/her with your VC appointed choice.

If he/she refuses... tell him/her that he/she is being a douche.

Email me for more info.

Cheers,
Mark

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