VentureBeat - Latest Comments in Welcome to the “Class F” stock, to protect you against greedy VCs

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Edwin Kyalangalilwa — Wed, 13 Apr 2011 05:26:08 -0000

Good article, very well written. He said that investors have “padded preferred rights agreements with increasingly complex terms that severely diminish the rights and protections of common stockholders.
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Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Ryan — Fri, 24 Apr 2009 12:59:06 -0000

First, I understand why you see this as a valued service. And your website does a great service for founders. Kudos.

Regarding Class F, I really can't see this changing the negotiating leverage position. There are a number of variables that can be adjusted in a deal. Class F is simply one more thing.

In the end, the best leverage for the founder is to have options, and it seems that Class F would reduce those options by scaring away potential investors. You want more VC's at the table fighting for business. That, and a great lawyer, will get you further, IMO.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Adeo Ressi — Fri, 24 Apr 2009 02:15:58 -0000

John, Class F and Series FF are not mutually exclusive. The Institute agrees with the statement that "We need to step back and be objective and stop being irrational."

Class F asks for nothing more extreme than many provisions of Preferred. If anything, it is a leveling of the playing field will allow all parties to act rational. One could argue that much of the bad behavior is driven by inequality.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

John — Fri, 24 Apr 2009 01:52:06 -0000

Totally naive and silly and demonstrates a departure from reality. Series FF was designed to provide liquidity to founders w/out screwing up FMV of common stock (b/c founders wanted to get bought out at the preferred price, but you can't very well do that w/out resetting common stock FMV and, thus, option strike price). This Class F stuff is stupid and will only hurt someone's chance to get funded. I agree with Ryan - if you have so many issues with VCs, then don't take their money. The assumption is you're taking the money b/c either it can't be found somewhere else (you could probably borrow the money, but you'll have to put your house up - sounds fun) or VCs actually provide value (whoa, novel concept!). VCs invest in people, by and large. If you're worth your salt, then you have nothing to worry about. If you can't execute, then why should a VC stick with you? Only to flush more money down the toilet? Please. We need to step back and be objective and stop being irrational. Indeed, what about the millions of dollars that companies flush b/c they can't execute? Should VCs start taking a lien on our houses, the way a bank would? Worry about valuation, not all of this other nonsense, which only matters if the company goes sideways. And if the company goes sideways, then step up and take some responsibility for it.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Adeo Ressi — Thu, 23 Apr 2009 23:30:56 -0000

Ryan, the strongest companies will get Class F terms. The vision is that companies coming out of the Institute will be "above average," justifying a stronger starting position in the documents.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Adeo Ressi — Thu, 23 Apr 2009 22:09:16 -0000

Well, it's not intended to be a gimmick. The theory is as follows:

(1) the Institute required legal documents to incorporate with and have participating companies use,

(2) the caliber of mentors, the application process, and the program are all carefully designed to produce world-class companies, so...

(3) the Institute produced a founder-friendly set of incorporating documents that represents the best terms available.

Why not give these documents away to all founders to use? You need a great company for the terms in the Class F agreements to survive negotiation with a professional investor. The assumption is that the institute will be producing great companies on a regular basis.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Check — Thu, 23 Apr 2009 21:44:42 -0000

This is a cheesy gimmick, period -- and the timing is totally off. Class FF shares were developed by Parker/Venuto at a time when the balance of power rested with Founders/Issuers.

Now, it's shifted toward investors. I'm telling you -- this is going to get laughed at.

It's also a sign that the BigLaw firms are in real trouble. These guys are losing business in droves. If Yokum had an active book, he would NOT have time for this nonsense.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Ryan — Thu, 23 Apr 2009 20:27:22 -0000

I understand the point everybody has, but consider it from the VC's perspective. They want the best return they can get, and they will weigh the less favorable class f provisions (from their perspective) into their decision process. If they are considering a set of companies to invest in, don't you agree that the start-up that uses class f shares is going to appear less attractive? This may actually hurt the overall valuation!

A class f share scheme can only work if most/all start-ups play the same game. IMO, you are better off getting excellent representation and advisers to help you through a negotiation, and negotiate from a position of strength.

Hey, its all speculative until we see it in action. However, I'm not risking my start-up on an exotic structure that will likely scare away investors. Anyhow, if everybody hates VC's so much, don't deal with them!

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Yokum — Thu, 23 Apr 2009 19:37:05 -0000

There is a short summary of Class F common stock at http://www.startupcompanyla...

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Jason Warren — Thu, 23 Apr 2009 19:01:50 -0000

This feels like one of those systems where there is strength in numbers - if most/all startups use Class F shares and issue them prior to a VC investment, it would be less likely that this would be disregarded by VCs. If startups take a piecemeal approach VCs will steamroll right over each company one by one, toss out this class of stock, and get the founders back on a typical plan.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

PeterA650 — Thu, 23 Apr 2009 18:32:59 -0000

Leveling the play field can only be a good thing. I'm glad the VC industry is going through a much needed shakeup. Only the committed will survive and that's who I want to work with when that time comes.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

ruse — Thu, 23 Apr 2009 18:21:16 -0000

Ryan, VC's absolutely need to invest. I's how they sustain their portfolios so there's no poison pill here. They've raped us for years and it's time for fair play. Thanks to The Funded for a step in the right direction.

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Adeo Ressi — Thu, 23 Apr 2009 18:01:39 -0000

Right now, most founders are common shareholders, and common shareholders have no substantive rights. This gives investors with Preferred Equity and Convertible Debt nearly all of the power. Class F simply gives power back to the Founders.

Yes, it is likely that investors will negotiate some of the beneficial provisions out of the Class F shares. When this negotiation happens, the founders will get to negotiate some of the beneficial provisions out of the Preferred Shares.

Before today, the only negotiating leverage that a founder had was to walk from the deal...

Re: Welcome to the “Class F” stock, to protect you against greedy VCs

Ryan — Thu, 23 Apr 2009 17:06:10 -0000

This sounds more like a poison pill to prevent investment from VC's.