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Comment by abalone | Hacker News Reader

> It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this)

Can anyone elaborate?

Sam articulates several advantages to having a board (focus on execution, thinking big, hiring executives) but none of them really require the board to have voting control, i.e. the ability to override the founder.

More generally, I think most founders would be fine with and welcome an outside board as long as there was a Zuckerberg-like voting agreement where the founders retained control. But then again I don't really understand the difference between that and a board of advisors.

Bottom line, why do investors care about control at the early stages? Do they really expect that they'll need to override the founder in the nascent stages? Is it just a security blanket? I would be wary of investors who really insist on the ability to vote against the founders at the seed to series A stage.

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You retain control by coding it into your corporate bylaws. For example, you might have two board seats elected by common (the founders + employees), one board seat elected by preferred (the investors), and the ceo hired/fired by a majority vote of the board. That way two founders can always outvote investors, but investor + founder could outvote the other founder (sometimes necessary).

The way you lose control is to do something like one seat to the ceo, one to preferred, and one "independent". The investor recommends his highly qualified friend as the independent member, then sometime down the road you run into trouble and the investors + independent fire you (the ceo), and then you've lost all control.

> but investor + founder could outvote the other founder

Seems like such a high risk to take on when as said above a board of advisers can accomplish similar benefits without the risk of a founder disagreement getting you pushed out of your company.

Thanks, but doesn't that contradict Sam?

You're saying "2 founders + 1 investor" maintains founder control. Of course it does.

But Sam's recommendation is 2 founders + 1 or 2 investors + 1 outsider.

My guess is what Sam means by "keep enough control so that investors can't fire you" is to have an outsider on the board so that the investor class is never in the majority by themselves. But if I understand you Paul you are explicitly saying that's a situation founders should worry about, and that they should instead keep themselves in the majority without relying on an "independent".

Basically what sounds best to me as a founder is to have outsiders on the board, so that you get the best advice, but maintain founder control through a voting agreement. But then again that also sounds not that different from an advisory board.

I think you are misunderstanding the way corporations are organized. All corporations must have a board of directors, and the board of directors is the ultimate top level decision making entity within the corporation. The board is always in control. Shareholders have the ability to periodically vote on directors, but that is basically the extent of their power. Shareholders have no right to influence day to day operations of the corporation. So, if you are a founder and want to assure control of the board, you must maintain a majority of voting class shares, otherwise large investors could vote in their own directors who can do whatever they want (like replacing the founder as the CEO).

> All corporations must have a board of directors

It this a legal requirement, or is it just by convention? Has anyone ever experimented with alternate company structures?

I'm not a lawyer, but I did just read a book† written by a lawyer†† about this topic. I think it's possible that it can vary state to state, but in Delaware (a very popular place to form corporations) the law††† says:

The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.

† http://www.amazon.com/The-Shareholder-Value-Myth-Shareholder...

†† http://www.lawschool.cornell.edu/faculty/bio_lynn_stout.cfm

††† http://delcode.delaware.gov/title8/c001/sc04/index.shtml

The board is always in control.

The control may be overstated. Their main method to utilize the control is hiring and firing the CEO. This puts them in a tough spot, because firing the CEO can damage a company.

> The board is always in control.

In control of what exactly? In early stage companies I'd say nobody's really "in control" of any meaningful outcomes: building something people want, making sales. The last thing you need is some "experienced" big company guy who thinks he can control things given enough board seats...

> if you are a founder and want to assure control of the board, you must maintain a majority of voting class shares

Typically doesn't help. Stuff like this is usually controlled through a shareholder's agreements (or in some jurisdictions possibly a company bylaw).

See Mrkurt's comment, something that can likely be copied and pasted a bunch of times in this thread.

https://news.ycombinator.com/item?id=8591724

> Bottom line, why do investors care about control at the early stages?

Because interests can diverge and if you have control you can protect or advance your own.

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