Protective Provisions
Protective Provisions embody the right of an investor or a group of investors to veto specific transactions within a company. These provisions serve as a protective shield, requiring approval via a class vote of the Preferred Stock before certain critical decisions can proceed.
What it Means:
Investors with Protective Provisions wield the authority to influence and safeguard key business decisions, ensuring alignment with their interests. These provisions act as a strategic mechanism to maintain investor confidence.
How to Calculate:
The calculation of Protective Provisions is qualitative rather than quantitative. It involves a thorough examination and definition of the specific transactions or decisions that fall under the purview of investor approval.
Why Measure:
Measuring the impact of Protective Provisions is crucial for both founders and investors. It establishes a framework for transparent communication, delineating the boundaries of decision-making authority and fostering a collaborative and secure investment environment.
Examples:
Consider an Indian startup where investors, holding Preferred Stock, possess Protective Provisions. The founders propose a merger with another company, a transaction covered by the Protective Provisions. The investors exercise their right to approve or veto the merger, ensuring their interests are protected.
Understanding and implementing Protective Provisions in the Indian startup landscape reinforces the balance between investor influence and founder autonomy, contributing to a resilient and cooperative business ecosystem.