Most Founders Get Fired. Here's How To Prevent it.

Seventy-five percent of founders are dismissed before their companies are either sold or go public. Even if their companies are sold for hundreds of millions of dollars, most founders make no profit. My name is Ryan. I’m a two-time founder who was ousted from my first venture-backed company, resulting in a $100 million loss. When I launched my second company, I delved into understanding why so many founders experience this fate. Here are essential controls to embed in your company’s charter upon incorporation to safeguard against unjust termination: 1. Founder-Centric Board Structure: Ensure that the core founder holds an irrevocable seat on the board. 2. Control Over Common Seats: Founders should generally control the appointment of common seats. However, it’s wise to appoint additional common seats at incorporation to counterbalance any potential adverse board members in the future. 3. Class FF Stock: Allocate a portion of your equity as Class FF stock, enabling founders to access liquidity at their discretion and offering downside protection if the company sells for less than the liquidation preference. 4. Robust Founder Employment Agreement: Implement a strong employment agreement with significant controls to prevent dismissal simply because the board disapproves of you. Importantly, avoid using the same attorney who incorporated the company, as they represent the company, not you personally. Instead, hire a separate employment attorney for this task. These principles form the foundation, but each element requires careful consideration. For instance, should your co-founder have a board seat? Given the board’s primary responsibility is hiring and firing the CEO, consider whether it’s wise to grant a potentially junior co-founder an irrevocable vote on your future. Also, contemplate the appropriate amount of Class FF stock to allocate to yourself; setting it too high could deter investors unless it’s adjusted. If you’re contemplating incorporation and wish to implement these controls, I’ve partnered with Clerky to guide you through the process. Feel free to direct message me for assistance. #founder #incorporating #fundraising #foundertok #startup