Priced rounds and term sheets
Control terms
Board seats, vetoes, drag-along, pro-rata and ROFR — who can force a sale, block a raise, or fire a CEO.
Economic terms decide how exit proceeds split. Control terms decide who can force a sale, block a financing, fire a CEO, or sell their shares. Many founders win on valuation and lose the company in the voting agreement.
Concept
Corporate control is not "51% of the common." Preferred elects directors, votes as a class, and holds contractual vetoes even when founders own a majority of the fully diluted table. Read governance as carefully as price.
| Step | Concept | What it answers |
|---|---|---|
| 1 | Board seats | Who hires and fires the CEO at each stage? |
| 2 | Protective provisions | Which actions need a preferred veto? |
| 3 | Drag-along and tag-along | Who can force a sale, or join one? |
| 4 | Pro-rata rights | Who gets to buy the next round? |
| 5 | ROFR and co-sale | Who can match or join a founder share sale? |
What to fight for
Priority when chips are limited:
- A board you can work with — founder seats plus a path to a true independent. Avoid an early investor majority.
- Narrow protective provisions — block deal-breaking amendments and sale games, not payroll.
- Standard drag-along with fair thresholds — help M&A, protect wipeout edge cases with counsel.
- Pro-rata for the lead, not infinite super pro-rata for everyone
- ROFR/co-sale that still allows planned liquidity
- No early redemption games
Trade-off
If you must choose, many experienced founders would rather sell an extra 2–3% than hand the board to investors at Series A. You can raise again into a higher price if the company works. Reversing a bad board is a career of politics. Protect control first when the economic terms are already near market.
Founder vesting reaffirmation often appears in these docs. Reasonable if you just formed the company. Insulting if you are fully vested after years of work — negotiate.
As an employee, these terms explain sudden CEO changes and blocked acquisitions: boards and vetoes did that, not Slack drama. As a founder, put the board diagram on one slide and have counsel walk the veto list line by line.
Common mistakes
- Giving on the board to save 2% on price. Control is harder to reverse than price.
- Wide vetoes "to be a good partner." Partners change. Certificates last.
- Skipping ROFR when someone wants a quiet secondary. The next lead's counsel will not skip it.
Key takeaways
- Control is board seats + protective provisions + voting agreements — not just ownership %.
- Evolve boards carefully; independents help; investor majorities early are dangerous.
- Keep vetoes on true control and economics, not operations.
- Drag-along enables clean exits; pro-rata is standard for leads; super pro-rata is scarce.
- When forced to trade, prefer conceding price over conceding the board.
Further learning
Venture Deals (Feld & Mendelson)Be Smarter Than Your Lawyer And Venture Capitalistventuredeals.com NVCA Model Legal DocumentsModel Legal Documents The NVCA Model Legal Documents serve as the industry-embraced model documents to be used in venture capital financings. What's new: Most recently, the NVCA model documents were revised to reflect…National Venture Capital Association - NVCA -
Cooley GOCooley GO offers a wide range of legal resources to high growth companies – from formation to M&A and IPO.Cooley GO
The Holloway Guide to Raising Venture CapitalA current and comprehensive resource for entrepreneurs, with technical detail, practical knowledge, real-world scenarios, and pitfalls to avoid.Holloway
Related
Board seats
Who sits on the board at each stage, why independents matter, and how an investor-majority board fires a CEO.
Term sheets: an overview
The anatomy of a VC term sheet — economic vs control terms, what is binding, and what to negotiate first.
Managing investors and boards
Monthly updates, board meetings, hard conversations and how to use investors for hiring and intros without losing the company.