Priced rounds and term sheets
Board seats
Who sits on the board at each stage, why independents matter, and how an investor-majority board fires a CEO.
The board of directors hires and fires the CEO, approves budgets and major financings (subject to shareholder votes), and sets the tone of investor relations. Preferred stock often elects directors even when founders still own a majority of the fully diluted table. Read the board diagram as carefully as the price.
Concept
Corporate control in a startup is not "51% of the common." Preferred elects directors, votes as a class on key matters, and holds contractual vetoes. Ownership ≠ control.
The big idea
A committee that can replace the coach mid-season is the board. Fans (common holders) may own more tickets and still not pick the lineup. The analogy breaks on protective provisions: even a founder-majority board cannot sell the company or issue senior stock if preferred withholds consent.
| Stage | Typical pattern | Notes |
|---|---|---|
| Pre-seed / seed | 2 founders, or 2 founders + 1 investor | Keep founder majority if you can |
| Series A | Often 2 common, 1 preferred, sometimes + independent later | Lead usually takes the preferred seat |
| Series B+ | 2 common, 2 preferred, 1 independent — or similar | Independents become swing votes |
| Late stage | Larger boards, more investor seats, observers | Observers attend but usually do not vote |
Observer rights let a fund attend without a vote — common for large non-lead checks. Observers still hear everything.
Tip
An independent acceptable to both sides is often healthy: they break ties and make contested votes less personal. "Independent" who is the lead partner's college roommate is not independent.
Watch for an early investor-majority board, automatic extra seats for every new major investor without expanding common seats, and a CEO as the only common seat while co-founders still operate.
Walking through it
Seed, two founders, one lead. Board = Founder A, Founder B, Investor. Founders can outvote the investor on ordinary matters. Protective provisions still block a sale or a dilutive charter change without preferred consent. Usually workable.
Series A "2+1". Two common designees (often CEO + co-founder, or CEO + independent later), one preferred. Preferred protects via the veto list more than via board majority. Healthy default.
Broken Series A. Board = CEO, Lead A, Lead B, with a vague independent "later." Two investor seats and one founder seat means the CEO serves at investor pleasure from day one.
Example
The company misses plan. Board is 1 founder / 2 investors. Investors vote to replace the CEO. Protective provisions also let preferred block a financing the remaining founder wanted from a friendly syndicate. The founder still owns 40% and has almost no practical control.
Voting agreements bind parties to elect the agreed slate. That is how the term sheet's diagram becomes enforceable.
Common mistakes
- Giving every new fund a seat. The board bloats and common loses the majority without a fight you meant to have.
- Leaving the independent unnamed. "We'll add one later" is how 1/2 boards stay 1/2.
- Confusing observer with director. No vote — but they hear every sensitive discussion.
Check yourself
Why is a 2 common / 1 preferred Series A board the usual healthy default?
Founders can run ordinary course; preferred still blocks sales and senior stock through vetoes rather than a board majority.
A founder owns 40% and the board is 1 founder / 2 investors. Who can fire the CEO?
The board. Ownership does not vote that question.
Key takeaways
- Board seats, not fully diluted %, decide who runs the company day to day.
- Keep founder or common majority early; fill independents with care.
- Investor-majority boards at Series A turn a missed plan into a removal machine.
Further learning
Next, protective provisions — the veto list that still binds a founder-majority board.
Related
Control terms
Board seats, vetoes, drag-along, pro-rata and ROFR — who can force a sale, block a raise, or fire a CEO.
Protective provisions
The preferred veto list — what must stay on it, and what turns the company into a hostage.
Managing investors and boards
Monthly updates, board meetings, hard conversations and how to use investors for hiring and intros without losing the company.