How It Works
- 1
Investor with 20% stake gets 1 board seat (33% voting power)
- 2
Protective provisions require investor consent for major decisions
- 3
Veto rights cover: new equity, debt, M&A, budget changes
- 4
Without investor approval, company cannot proceed
- 5
Small economic stake translates to disproportionate control
Key Mechanics
Board seats vs observer seats (voting vs non-voting)
Protective provisions specify consent requirements
Drag-along rights force minority shareholders in exits
Information rights provide ongoing visibility
Regulatory Context
Standard venture financing terms. Delaware law governs most startup corporate governance. NVCA model documents include standard protective provisions.