How do you manage the risk of losing control or influence over a startup as it raises more funding?

First and foremost in this discussion is establishing whether you are a control investor or a minority investor. It appears that this article is targeting many of the protections that could be on or off the table for minority investors. That is important to keep in mind as any majority investor would be truly disadvantaging itself and leaning away from even a middle of the road position without negotiating all of the rights in this article as part of their deal. Considerable discourse exists as it pertains to the bundle of minority protection rights that are available and relevant to VC investments. Some are touched on in this article. However, simply referring to “pro rata” rights is reductive. More related to this theme below.

Board roles require time commitment and should not be taken on lightly given the fiduciary obligations you have and potential personal liability. Observer roles can turn into shadow director roles with the same obligations and potential liabilities if you act like a director. So be aware of this when taking on observer roles and when acting as an observer whose role should be passive and observe as the name suggests.

Board seats are important. As is other matters: / composition. / goals. / metrics. / and who’s at the table including observers !

There are board seats, the risks of taking a board seat and, hence, the sometimes favorable option of including board observation rights at the outset with one or more trigger events that could “spring” a board seat into existence. For example, something like min/max revenue hurdles. If revenue falls above or below a certain level then you can trigger into one or more board seats. Board observation rights, inspection rights, negative or affirmative covenants can all be levered to nuance the level of oversight or control a VC investor might favor in any given transaction. Referring to standard forms (not relying on) such as SAFE documents or NVCA documents is an easy way for an investor expand their knowledge of available options.

Stop trying to control your portfolio. The only reason you'd have to resort to that is if your interests don't align with theirs.

Good. But these clauses are standard. Any venture deal without them is off market and predatory - it should not happen. What’s equally important is pre-emptive rights; the ability to “keep up with the deal” and re invest at the same ownership level prior to such financings.

Further to Adam’s point above, AD protection is a “must have” for any VC investor who is not trying to get eviscerated in subsequent funding rounds, buy/sell scenarios, or various corporate stock/unit realignments. But what version of AD rights are appropriate? Full-ratchet? Weighted-average ratchet? Or one of many other variants? Further, there is a difference between “economic dilution” and “ownership dilution.” Does a funding round dilute your ownership and control…or your economics? Or both? It is crucial that investors understand this distinction if they expect to negotiate appropriate protections that also do not stunt the company’s growth or ability to raise capital, find new talent, and so forth. a human right as it

Through my journey, I have found actionable steps to be effective in building that trust with portcos early on, so your influence stays at its core such as: - Leveraging my expertise as a marketing specialist to actively engage in beta testing and new feature products. - Supporting founders in presenting their vision and value proposition with clarity and impact for effective fundraising - Utilizing my extensive network to facilitate intro with other investors, buyers and users. Last year, I assisted an Edtech portco by connecting them to the MENA market. - Maintaining open lines of communication through regular bi-weekly sprint cycles to establish a solid process for collaboration, fostering transparency, and enabling mutual growth.

We put a lot of time and effort into building trust. When an investment occurs, it's a long journey of tackling obstacles and growth with the leadership team. It opens up communication, allows comfort for both sides when needing help, and it takes out the formality that frequently occurs between investors and founders. It has enabled our team to help in vulnerable times, created fulfillment when asked to be on their boards, and allowed us to stay in on investments when there were large buyouts of early investors. People in our organization are entrepreneurial or have been a part of operating a growth business to be as helpful and empathetic as possible.

The ultimate strategy is to forge your reputation. It demands years, even decades of unwavering dedication, leaving no room for a single misstep.

Yes, building trust and rapport is important. However, are you trying to befriend the company or Board or CEO, of invest on market terms? It is one thing to say that your expertise might be a valuable commodity that should entitle you to enhance rights or better pricing or a like kind benefit. It is imperative, however, that your VC investment not be done to satisfy your own ego, or because you think it might give you a platform to enhance your visibility or stature. Unless you negotiate for it. You want a platform or to be “seen” as an advisor to the business? Well you better make sure that you get a consulting or similar agreement as part of your deal. You want to be relevant? Better make yourself a priority.

One way to begin building a diversified portfolio is to join an angel group like North Texas Angel Network. You can gain access to many deal opportunities as well as collaborate with other experienced investors, thereby reducing some of your risk.

This is a good overarching theme and philosophy for your VC investments. But it is not something you can do in a singular investment unless that investment is in a VC fund. Mitigating your risk, preserving and protecting your capital, and other investment-specific goals are where your eyes should be trained when negotiating your entry into or exit from any VC investment.