5 principles for a reasonable governance in the context of your capital raise
(to be included in the shareholders’ agreement):
- Single class of shares
- Board representation with a minimum threshold of 10%.
- Observers on board if justified / needed
- Usual minority rights (tag along / drag along / priority rights).
- In terms of liquidity: at 5 years.
- In terms of reporting: Accounting information and KPI tracking by quarter.
- Complex legal structures (e.g. patents housed in a separate entity)
- Limit the number of direct shareholders: if possible, group all shareholders holding less than 2% in a holding company.
- Guaranteed minimum return clauses.
- Priority exit clauses.
- Tiered pre-emption clusters for founders / others.
- Veto rights i.e. clauses disallowing sale to certain third parties.
- Partnerships with strategic investor (up to the most favored nation clause).
- Anti-dilution clause for new entrants at 50% max within 24 months.
- Protection and commitments of key managers / founders for a period of 18 months minimum.
- Board with credibility for subsequent rounds / exit.
- Board with balanced profiles to avoid splits in the board into opposing camps.
- Clear delegations to managers / executive committee.
Source: Alexander Partners