The rights in an investment round are not a legal whim, but an explicit allocation of risks. The investor seeks to protect capital and ensure influence in adverse scenarios. The founder, for their part, aims to preserve operational control, execution speed, and their long-term economic incentive. When both protections are aligned, the shareholders’ agreement reduces uncertainty and improves governance. When they are not, the agreement becomes a permanent source of friction.
The investor typically protects four main elements. First, the loss of economic control in negative scenarios. This is where liquidation preferences and the rules that determine what happens if the company is sold below expectations come into play. The investor’s message is clear: if the final outcome is mediocre, I want to recover my investment first.
Second, they seek protection against future dilution under unfavourable conditions. This is why adjustment mechanisms exist in certain rounds, or pre-emptive subscription rights.
Third, they protect access to information, because without information there is no real risk control. This is where reporting, monitoring and audit rights come from.
And fourth, the investor wants the ability to block decisions that could destroy value. This translates into veto rights over structural decisions, such as taking on significant debt, selling key assets, making statutory changes, or issuing new shares.
The founder, on the other hand, seeks to protect the continuity of the vision and the ability to execute. Their risk is not just losing money; it is losing the steering wheel of the company they are building. This is why they typically defend control of the board of directors, the absence of operational vetoes, and the freedom to iterate on product and market without having to ask permission for every change of direction.
They also protect their future incentive. If the economic design leaves the founder with too limited a return, the company loses its main driving force. Properly understood, founder protection is not a matter of ego, but of ensuring that the person driving the project continues to have reasons to do so.
The most common friction arises when one protection is interpreted by the other party as a threat. A frequent example is the veto right. The investor sees it as insurance against reckless decisions; the founder, as a brake on agility. The solution usually involves limiting the veto to truly extraordinary decisions and keeping day-to-day management in the hands of the executive team.
True alignment is achieved when each right responds to a specific risk accepted by both parties. If the investor protects their capital without blocking operations, and the founder protects their ability to execute without ignoring the risk of third-party capital, the agreement ceases to be a struggle and becomes a framework for cooperation. In a new company, that difference is not theoretical: it is the distance between moving forward with focus or wearing yourself out in internal friction.
Having personalised support, such as that offered by the Galician Economic Office, can be key to a successful implementation. Request free specialist advice and take advantage of the available resources to drive your business forward.
