Shareholder Alignment

Sorry for the longer time between posts lately.  I have been swamped at work and that is my excuse.  Given that, I have been wondering how Fred Wilson and Brad Feld (among others) do it – how do they post almost every day. I am sure that they too are swamped at work.  When I wake up they are always waiting “smiling” at me in my inbox.

For Brad, I am pretty sure it is because he has no kids.  My kids luckily take up a lot of my time, and I am fortunate for that!

For Fred, I think he is just super human and maybe sleeps very little.  He has kids and he seems to do a lot with them based on his posts.  Ok, enough chatter.

Quick substantive content.  Shareholder alignment is a tricky topic that involves not only the alignment of common holders (think founders and management) with preferred holders (think investors), but also the alignment of preferred holders with other preferred holders.  The simple truth is that the more shareholders a company has the greater likelihood of misalignment of shareholders.  I like to follow the general rule that minimizing the number of shareholders is always a good thing.

You might have a situation where one Series of Preferred Stock wants outcome X and another Series favors outcome Y.  You might have a case where a group of investors inside Series A favors a different outcome than another group of investors inside that same Series A (for example, one group might have more dollars to invest and so favors keeping the company independent and another group might be tapped out and favors selling).  There are many variants and examples.

I find the alignment or misalignment of interests among investors a fascinating topic.  Just as investors love to invest in entrepreneurs they already know, VCs love to invest with VCs they know.  This minimizes the chance of misalignment and also creates a typically reasoned outcome when it happens.

As an entrepreneur/founder, I urge you to think about not only the alignment of your own interests with those of your investors, but also how your investors’ interests might run in parallel or intersect/clash with each other.  Both topics could greatly impact your startup.


2 thoughts on “Shareholder Alignment

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