The Venture Governance framework is the third building block of the Open Incubation model. The purpose of the Venture Governance framework is to guide a venture team to agree upon the main rights & obligations of the participants regarding leadership, information sharing (level of transparency) and role based ownership. It enables the venture to be fully transparent on the governance of the venture, both in the start-up phase as well as for the moment the venture becomes incorporated.
One man, one vote – The Founders, Founding Investors and if applicable Venture Capitalists will each obtain one vote following the ‘one man, one vote’ principle in the Venture Board. This principle is important to safeguard the continuation of spirit of the participants at the incubation phase the moment the venture becomes incorporated. Why should you change the venture governance at the moment of the incorporation?
Transparency – Participants make their envisaged role, contribution and reward explicit and transparent through the Contribution & Reward framework. Information on the progress of the venture will be shared amongst the venture team according to the Venture Governance framework.
Role based ownership – if participants become owner (shareholder) of the venture, their shareholding and the associated rights & obligations remain directly linked to their role at the venture. This is a key principle of the Open Incubation model. The impact of role based ownership is further detailed in the Venture Governance framework.
More in detail, this principle could become more concrete as follows:
- A lock-up period of three to five years for all shareholders unless the Venture Board decides to pursue an exit of the Company or to facilitate trading. Becoming shareholder of a venture is the result of your direct involvement (through your role and contribution) with the venture. It is not a return driven investment in a security you can buy and sell at any time you like.
- To avoid dead-lock situations when Founders, Founding Investors, Key Employees or Venture Partners are no longer involved (i.e. they become Leavers) and to re-align role and contribution of such Leaver, the financial return on economic ownership of the Leaver will be reduced (full vesting). The relative reduction of the valuation at exit is dependent on:
- the number of years the Leaver is no longer active for (involved with) the company pre-exit
- The qualification of the leaver event (good/bad leaver)
- All shareholders have shareholder protection rights with respect to economic ownership and a drag and tag along in an M&A event.
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