The terms sheet contains several investor rights relating to Governance and Control.
Here are three of them:
Right of First Refusal
The Right of First Refusal clause says that if a founder sells his or her shares, then the preferred share investor gets the right to buy those founder shares first. Doing so results in increasing the investor’s equity ownership in the company.
This clause says that if the startup company sells shares to raise more funding, the current investors have the right to buy the shares first.
If the startup registers its stock on the public markets, then the startup must also register the investor stock shares and pay the legal fees for it.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.