Could DVR(Differential Voting Rights) Have Saved Sam Altman From Getting Fired From OpenAI?

In the dynamic landscape of startups, founders constantly grapple with maintaining control over their ventures while seeking necessary investments for growth. This balance is crucial yet often delicate, as illustrated by the recent and surprising dismissal of Sam Altman from OpenAI. Altman's departure, shrouded in speculation about disagreements with the board, brings into focus the challenges faced by founders in such high-stakes scenarios.

Understanding Differential Voting Rights (DVR)

DVR, or Differential Voting Rights, offers an alternative equity structure where founders can retain significant control over their companies. These specialized shares empower founders with enhanced voting rights, often outweighing their actual equity stake. DVR has its strategic importance in the corporate power play.

Beyond preventing abrupt dismissals, DVR offers several advantages for founders, including

1. sustained strategic direction and
2. attracting investments without diluting decision-making power.

However, it's crucial to address the potential downsides, such as

1. investor skepticism and
2. governance complexities, to provide a balanced perspective.

With DVR, founders can issue themselves a class of shares that carries more voting power than the shares held by other investors. This means that founders have more say in the company's decision-making process, even if they do not own a majority of the shares.

DVR can be a valuable tool for founders in a number of ways:

• It can help to protect founders from being ousted by the board, even if the board owns a majority of the shares.
• It can give founders more control over the company's direction, even if they do not have a majority of the voting power.
• It can make it easier for founders to raise capital, as investors may be more willing to invest in a company where the founder has a strong say in how the company is run.

How Founders Can Use DVR to Protect Themselves

If you are a founder, there are a few things you can do to protect yourself using DVR:

• Issue yourself a class of shares with DVR when you first form your company.
• Make sure that the DVR provisions in your company's charter are clear and unambiguous.
• Get legal and financial advice to make sure that you are fully aware of your rights and options.

Final Two Cents

DVR is not a silver bullet, but it can be a valuable tool for founders who want to retain control of their companies. By using DVR, founders can protect themselves from being ousted by the board and ensure that they have a say in the company's direction.

Additional Tips for Founders

• Be clear about your vision for the company and make sure that the board is aligned with your vision.
• Build a strong team of executives who share your vision for the company.
• Be transparent and communicate regularly with the board.
• Seek legal and financial advice to make sure that you are fully aware of your rights and options.

Can DVR be issued in India?

Yes, differential voting rights (DVR) are available in India. The Securities and Exchange Board of India (SEBI) first introduced the concept of DVRs in 2000. However, they are not so popular in India. Companies can issue DVRs with different voting rights in two ways:

• Superior Voting Rights (SVR): Under this scheme, a company can issue shares with fractional voting rights. For example, a company can issue one DVR share that has one vote, while one ordinary share has 10 votes.
• Inferior Voting Rights (IVR): Under this scheme, a company can issue shares with no voting rights. However, IVR shareholders typically receive higher dividends than ordinary shareholders.

There are a number of reasons why DVRs are not so popular in India:

• Investor Protection: Some investors are concerned that DVRs give founders too much control over the company. They believe that this could lead to founders making decisions that are not in the best interests of all shareholders.
• Complexity: DVRs can be complex to understand and implement. This can make them less attractive to some companies and investors.
• Liquidity: DVR shares are typically less liquid than ordinary shares. This means that it can be more difficult to sell DVR shares, which can make them less attractive to investors.

Despite these challenges, there are a number of potential benefits to using DVRs in India. These benefits include:

• Retaining Control: DVRs can help founders retain control of their companies, even if they do not own a majority of the shares.
• Raising Capital: DVRs can make it easier for companies to raise capital, as investors may be more willing to invest in a company where the founder has a strong say in how the company is run.
• Aligning Interests: DVRs can help to align the interests of founders and investors. This can lead to better decision-making and increased shareholder value.

I think, that this concept should be known to many founders today. and if possible, then should try to avoid this unpleasant situation at all costs.