Duties of Startup Directors and the Rule of Common Maximization
Do you know what happens in cases of conflict between the founders/employees (common shareholders) & VCs (preferred shareholders) such as in down-rounds, recaps or sale of the company?
If there is one truism in corporate governance, it’s that “one size does not fit all.” As highlighted by Stanford GSB Professor David Larcker and Brian Tayan in their article “Loosey-Goosey Governance,” the understanding of governance suffers from at least two problems: 1) the tendency to overgeneralize across companies — to advocate common solutions without regard to size, industry, or geography, and without understanding how situational differences influence correct choices; and 2) the tendency to refer to central concepts or terminology without first defining them.
As I’ve written in prior posts on startup governance and venture-backed company governance, there is still a widespread misunderstanding and under-appreciation of the scope of fiduciary duties owed by directors in U.S. venture-backed startups.
This is particularly worrying within the ranks of directors, which include VCs (often the most experienced directors since they are repeat players and sit on many boards, sometimes t…
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