by Naomi Kokubo, Editor of Founders Space
Class F stock was invented by The Founder Institute and Yokum Taku (a Silicon Valley lawyer) to help protect founders. Typically, when a startup receives venture funding, the founders wind up with Common Class shares, while the investors get Preferred Class shares. So what is Class F stock? Class F stock gives founders some added benefits, including 10 votes per share, some protective rights similar to those of preferred stockholders, and the right to elect a director that has two votes on the Board.
Is this a good thing? For founders it’s great!
Will founders be able to get Class F stock when venture funded? Probably not.
At least, not in the near future. For the time being, most founders can ask politely for Class F stock or even demand it, but they probably won’t get it. Venture firms like control over the companies they invest in, and I doubt they’re going to give up this control, unless they really want the deal.
In most cases, the founders don’t have the leverage to demand a new class of stock. Someday, in a perfect world, every founder would be given Class F stock. But I wouldn’t hold my breath. Remember the golden rule: “Those who have the gold make the rules.” Investors have the gold, so they usually make the rules.
That said, if founders band together and insist on Class F stock, that might persuade some of the more flexible VC to go along with it. Also, if you have a startup that is on fire, like the next Twitter or Facebook, you can probably demand Class F stock and get away with it. In all other cases, I seriously doubt Class F stock will gain much traction amongst VC in the near term.
For more details on Class F stock, I recommend this article: Ask the attorney: What the heck is Class F stock?