Control of company: Do you (typically) use options or issue stock directly? Do you just issue common stock? Or do you use voting / non-voting to keep control?

[Ric Richardson]

Options versus stock is just a tax issue for the execution team... they will tell me how they want it, but the bottom line is, no performance no stock.. and they have to use raised funds in accord with the agreed business plan or they are out... common stock is the only way to go unless the execution and money people demand that i lose controlling vote in which case I demand non diluting shares. I try to keep it simple.

I also like to use tiered holding companies in the event my dilution is so low that we have to raise money and possibly lose control, in these situations I bundle the existing shareholders into a holding company and then move the assets to another trading company that allows me to maintain control of the holding co and still dilute as new money or execution professionals are needed. I do this if the existing execution team has failed and I need to cut my losses and move on without devaluing the existing investors.

[Hugh]

Thanks for breaking these questions out. I don't tend to post over the weekend (minimal PC time, a household peace treaty for work-life balance :) ).

Ok, that makes sense. I've chatted a bit to Brad Feld and he's very 'pro' performance based options structures.. a little too complex for me at this stage though (he's a fairly prominent US VC, who puts a lot of time into supporting tech startups- a very generous guy like yourself).

Thanks for the advice regarding use of tiered companies and dilution- I'll definitely keep that in my back pocket. Not sure how to articulate it in the shareholders agreement.. but that's what lawyers are for :) 

Are there particular clauses that you consider 'must have' / deal breakers when negotiating with money or people for your commercialisation team? i.e. to do the restructure you described you'd need a special resolution, do you maintain enough control to execute that yourself.. that requires a lot of trust from other parties.   (Sorry.. I'm full of questions.. consider the first part the question... the second part a strangely worded statement :) )

[Ric Richardson]

Just common stock... if the CEO has not raised enough in the round A of funding you should still be 51%+ of the company if you do it right... have a good CEO means the money is cheap which means you only lose control if the CEO abides by the business plan... its all win win...

Ric