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Non competes are illegal in California, there is no legal way investors can lock founders and employees down. This is venture capital investment risk. The employees, who are most of the value (aside from potential IP and customer contracts), can walk at any time.

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I understand your clarification. You should be able to use vesting schedules, right of first refusal to counter, careful definition of IP and trade secrets with assignment to the company, right of repurchase of shares, etc.

This is indeed venture capital risk, but this case lays bare the exorbitant amount of risk for investing in these types of companies--perhaps especially in California?

It doesn't have to be a lawsuit preventing them from leaving. Golden handcuffs usually work pretty well for such a situation.

Unless investors and management are unwilling or unable to counter a superior offer. “Pay them more” works when willing and able. Otherwise, bounce. Comp is king during a gold rush you’re unsure how long will last.

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