What is Class F Stock (or Founders Stock)?

Naomi Kokubo

Naomi Kokubo

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?

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