Thank you for this posting. Would you consider this paragraph suitable for a certificate of designation for Series A stock?

Best,
Chris.

Recently an invester gave notice to our company regarding the transfer of shares to 3rd party and our company, which is entitled first right of refusal, responded with intention to purchase all the shares that the investor intended to sell. After our comapny’s notice, the investor did not respond (I guess the investor was surprised that the company would buy all the shares back) although we have been pushing for action. Anyway, we followed all the procedures under shareholders agreement and we are expecting the investor do the same. Is there anyway we can push for the share transfer closing without going to Arbitration as stipulated per share holders agreement?

Thanks for your opinion.

I don’t think the Right of First Refusal is about “screwing small shareholders.” In many financings, especially down round financings, VCs will insist the company do a rights offering to give EVERY shareholder an opportunity to participate on the same terms as the VCs in the new round. I’ve found that entrepreneurs often push for a share threshold so they don’t have to “include all the old investors” in the ROFR process. So – this one is a mixed bag – but the goal is not to screw the small / earlier shareholders.

I have never seen that before, on any blog.

What are you worried about, Mr. Feld?

CEOs and companies should treat their shareholders equally to the greatest possible extent.

It boils my ass—and I’ve been a successful VC at a top firm and a successful CEO–how VCs want EVERYTHING while crying about the risks they supposedly take. E.g.: multi-liquidation prefs; anti-dilution (amazing to me, that one); board control; negative control via covenants; first-refusals, etc.

Either all shareholders get a first refusal…or NONE of them do. Simple, yes? And fair (not a word VCs like, that one).