How to create better shareholders’ agreements—an entrepreneur’s perspective

22.11.2021 07:05, Isabelle Mitchell

An entrepreneur, an investor, and a lawyer participate in an interview series… What sounds like the setup for a joke is serious business: In a new series, we present three different perspectives on convertible loans, term sheets, and shareholders’ agreements so that you can gain new insights to negotiate with more confidence. yamo CEO Tobias Gunzenhauser shares his expertise on shareholders’ agreements.

Completing the series on shareholders’ agreements is Tobias Gunzenhauser, the co-founder and CEO of yamo. Tobias and his team build a category-leading kids’ food brand: yamo’s snacks are 100% organic, plant-based, and full of vitamins—without any added sugar. The Zug-based foodtech startup has been one of the TOP 100 Swiss Startups from 2018 to 2021.



Tobias, When did you set up the shareholders’ agreement (SHA) with your co-founders? What went well, and which mistakes did you make in this regard?
The first SHA we set up right after we founded the company. We received the template through family and friends. It was a really lean SHA but did not cover all aspects that later became important when first outside shareholders joined the company through financing rounds. In retrospect, I’d use an SHA template that is battle-tested in the startup context from the beginning. We basically had to do the work twice.

What are the key points you absolutely want to have in an SHA?
SHAs from venture-backed startups probably always cover the same topics. But some that I find particularly important—because they have an impact on who decides what or what percentage of votes are needed for certain decisions—are the following:
 

• Important board and shareholder matters
• Drag- and tag-along rights
• Right of first refusal
• Bad and good leaver provisions

It might feel over-engineered and too early to talk about some of these topics (e.g., in a seed round), let alone put them into contracts. But think of it this way: If you care about solid governance very early on, you will have a solid base for when you go into larger funding rounds where you don't want to lose much time on these topics but already have strong anchors in place.

What are the elements you would not accept in an SHA?
 

• A too-low percentage to drag other shareholders
• Veto rights for individual shareholders

When you're building a company, you need a shareholder base aligned on what you want to reach together. Together is the important word here. It's not you versus shareholders or shareholders versus founders.

And the base for a feeling of togetherness is that there are no differences in the rights for different shareholders (apart from, for example, liquidation preferences for different shareholder classes). Furthermore, you want to make sure that the company is set with the long term in mind, and therefore, the majority of shares can't be sold if just a minority of the shareholders wants this.

Entrepreneurs are often worried they will lose control when giving too many board seats. What do you tell them?
It’s all about who sits on the board. As a founder, you have the vision for the company and are driving the business. You and the team make things happen. The optimal board is a forum where you can constructively be challenged and think outside of the everyday hustle. It’s not about control; it’s about another layer of thinking. If you manage to have a functional board where you are aligned in how you do things, then you can talk about the “what” in a very positive way.

What do you consider when setting the decision-making rules, such as required voting thresholds?
Personally, I think when the board comes to the point where you need to vote on things, something is broken. You can have different views on things but should always orient yourself on data and facts. Then you debate these objective points, and you decide on a way forward.

What is very important is that the rules are set in a way where no party can decide alone what’s going to happen. This will be hindering an open and rational discussion because you’re either in a position where you don’t need to make an effort (because you anyway decide) or in a position where you can make the best effort but still be overruled (which would be very frustrating).


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