December 2010Someone we funded is talking to VCs now, and asked me how commonit was for a startup's founders to retain control of the board aftera series A round. He said VCs told him this almost never happened.Ten years ago that was true. In the past, founders rarely keptcontrol of the board through a series A. The traditional series Aboard consisted of two founders, two VCs, and one independent member.More recently the recipe is often one founder, one VC, and oneindependent. In either case the founders lose their majority.But not always. Mark Zuckerberg kept control of Facebook's boardthrough the series A and still has it today. Mark Pincus has keptcontrol of Zynga's too. But are these just outliers? How commonis it for founders to keep control after an A round? I'd heard ofseveral cases among the companies we've funded, but I wasn't surehow many there were, so I emailed the ycfounders list.The replies surprised me. In a dozen companies we've funded, thefounders still had a majority of the board seats after the seriesA round.I feel like we're at a tipping point here. A lot of VCs still actas if founders retaining board control after a series A is unheard-of.A lot of them try to make you feel bad if you even ask — as ifyou're a noob or a control freak for wanting such a thing. But thefounders I heard from aren't noobs or control freaks. Or if theyare, they are, like Mark Zuckerberg, the kind of noobs and controlfreaks VCs should be trying to fund more of.Founders retaining control after a series A is clearly heard-of.And barring financial catastrophe, I think in the coming year itwill become the norm.Control of a company is a more complicated matter than simplyoutvoting other parties in board meetings. Investors usually getvetos over certain big decisions, like selling the company, regardlessof how many board seats they have. And board votes are rarelysplit. Matters are decided in the discussion preceding the vote,not in the vote itself, which is usually unanimous. But if opinionis divided in such discussions, the side that knows it would losein a vote will tend to be less insistent. That's what board controlmeans in practice. You don't simply get to do whatever you want;the board still has to act in the interest of the shareholders; butif you have a majority of board seats, then your opinion aboutwhat's in the interest of the shareholders will tend to prevail.So while board control is not total control, it's not imaginaryeither. There's inevitably a difference in how things feel withinthe company. Which means if it becomes the norm for founders toretain board control after a series A, that will change the waythings feel in the whole startup world.The switch to the new norm may be surprisingly fast, because thestartups that can retain control tend to be the best ones. They'rethe ones that set the trends, both for other startups and for VCs.A lot of the reason VCs are harsh when negotiating with startupsis that they're embarrassed to go back to their partners lookinglike they got beaten. When they sign a termsheet, they want to beable to brag about the good terms they got. A lot of them don'tcare that much personally about whether founders keep board control.They just don't want to seem like they had to make concessions.Which means if letting the founders keep control stops being perceivedas a concession, it will rapidly become much more common.Like a lot of changes that have been forced on VCs, this changewon't turn out to be as big a problem as they might think. VCs willstill be able to convince; they just won't be able to compel. Andthe startups where they have to resort to compulsion are not theones that matter anyway. VCs make most of their money from a fewbig hits, and those aren't them.Knowing that founders will keep control of the board may even helpVCs pick better. If they know they can't fire the founders, they'llhave to choose founders they can trust. And that's who they shouldhave been choosing all along.Thanks to Sam Altman, John Bautista, Trevor Blackwell, PaulBuchheit, Brian Chesky, Bill Clerico, Patrick Collison, AdamGoldstein, James Lindenbaum, Jessica Livingston, and Fred Wilsonfor reading drafts of this.
