Startups · Entrepreneurship

What do you do when you lose control of your company to investors?

Nick Cruz CEO at Nick Software Solutions

September 15th, 2016

A dear friend of mine is already at a Series B stage where him and his co-founders have lost control of the business. The institutional investors are really the ones that are driving the decision making. Any thoughts?

Jim Scott CFO * Financial Growth Accelerator * Virtual Company Architect

September 15th, 2016

Since the probability of success increases with every level of investing, seed to A, A to B, etc. maybe the issue of control is less important. Collaboration and consensus to achieve the objectives defined in the business plan is in the best interests of all parties. Investors rarely push their control rights as long as a business performs to plan, and their ownership is not diluted. 

Lonnie Sciambi

September 15th, 2016

What most entrepreneurs don't get is, no matter the percentage ownership, professional investors will always "drive the bus."  Your friend lost control the day he accepted the A round investment.  It goes with the territory. 

John Lonergan Author: Antidote at Amazon

September 15th, 2016

Of course the investors have taken it over.
By the time of series B, or sometimes series C, the investors are running the show.  If they don't like the co-founders, they're out.
Yet another reason to keep spend down and not raise VC money.  The investors' goals are different than yours.

Joanan Hernandez CEO & Founder at Mollejuo

September 15th, 2016

Great answer here.

I'll add this history: CISCO systems was founded by a married couple. Both from Stanford university, he wanted to send messages to his wife, on the local network. So he invented this device called a router, so his message reach her.

When CISCO grew like crazy, he -openly said- wasn't manageable material. He was a researcher and that was it. She wanted to run the company her way, however she started clashing with the management the investors put in place. In the end, the board of directors took her out of any position within the company. she felt betrayed. Investor told her, don't take it personally, however she did. She sold her stocks, even against the suggestion of the investors who bet on the company initially. It is rumoured that that sold operation got her around 400$ million, however had she taken investor advice and not feeling the stock, those stock were worth billions, with a b.

So, as it was said here, bringing investor is bringing sharks to you company. The challenging is converting them to be your sharks, or be clear that at some point the founder will loose control.

another good example is Alphabet (aka Google), Larry Page (one of it's founder) wasn't CEO material initially. He had to wait for that, and he with Brin (the other founder) had to look out for another CEO for Google. You can see it as losing control, but they plated the game until Page was able to show up he was ready for the job.

Best of lucks! 

Leslie Wolfe Founder - ...

September 15th, 2016

My belief is always maintain 51% and any board created would be advisory only. That way you can't be fired (steve jobs).

Laurelle Johnson, MBA

September 15th, 2016

Is control the objective or driving the revenue performance?  Google invited investors in and Sergei owns only 8% of the Co.  Worth billions I might add.  So is it more important to have control of the company or help drive the business into the billions?  

Ema Chuku Product Developer. Founder.

September 15th, 2016

As the saying goes, "You can not have your cake and eat too"..

When you raise outside funding you are compromising from inner sources. So at this time, this is what your friend should have expected. He can either deal with it and see himself as an employee of a company he started or leave (that's assuming investors don't get rid of him before then).. It happens.

John Lonergan Author: Antidote at Amazon

September 16th, 2016

That doesn't work either, Leslie.  You'll see that standard terms make it easy for VCs to take control if things aren't going well.  In particular, if the company misses agreed milestones, there's generally a management change option.

Ephraim Ben Dor

September 21st, 2016

What about class B shares or a golden share?