Founder Friendly Standard gives founders 24:1 super-voting shares of stock. The purpose is to keep founders in control of their startups so they can build for the long term.
- Google has 10:1 super-voting equity for its founders. Snapchat doesn’t give shareholders any voting rights. Investors buy stock in these companies every day.
- The Credit Suisse Family 1000 research found that companies controlled by their founders build for the long-term, which translates to a competitive advantage over time.
- Principal-agent theory suggests that agents (investors) may be more short-term focused than principals (founders).
- Prospect theory suggests that diversified investors would engage in riskier behavior to seek outsized gains. Founders, whose net worth is not diversified, would often prefer the opposite.
Founder Friendly Standard is US term sheet template and a checklist of legal issues that can be adapted to the laws of nearly every country. Section 2.2 of the standard says that founders’ stock vests over 4 years. In some legal jurisdictions, unvested stock shares cannot vote. Thus, 24:1 voting rights allow founders to be generous with the company’s cap table while staying in control as their stock vests.
Founders should have more votes than investors. Do you agree? Reply in comments.
Many first-time entrepreneurs don’t fully understand the importance of controlling their startups until it’s too late. Nor do they understand there is an alternative to taking investor money; the alternative is building a customer-funded business as John Mullins writes.
Dan, Adam, and I—the authors of Founder Friendly Standard—have life experiences that point to the importance of giving founders control. Read about our struggles here in “I’ll be the Sean Parker to your Mark Zuckerberg.” Founder Friendly Standard is our way of helping other entrepreneurs go further by raising awareness of the importance of super-voting equity and other issues in Founder Friendly Standard.
INFOGRAPHIC: How does Founder Friendly Standard compare to term sheet templates from 500 Startups, Y Combinator, NVCA, Gust, and Sam Altman?