Dear SaaStr: How Common Is It For a Seed Investor To Have The Right to Block a Sale?
It’s not super common to have an explicit "veto", but it’s not unheard of either. Usually it's phrased as a consent by the investors rather than a veto. And usually you are going to need most investors' votes to sell even if you don't need their consent. That's important.
It's very, very hard to sell your start-up unless 80%+ of the investors agree. No matter what the docs say.
Here’s the deal:
In a $3M seed round, most VCs won’t explicitly ask for the ability to block a future sale unless they’re taking a significant ownership stake—say, 15% or more—and even then, it’s not standard.
However, protective provisions are often baked into the term sheet, and these can give investors veto rights over major decisions, including a sale of the company.
And various state and other laws give shareholders protections.
And finally, acquirers are going to require at least a majority of all investors agree to any sale. Often 80%-90% really.
What to Watch For:
1. Standard VC Protective Provision
These are clauses that require investor approval for certain actions, like selling the company, raising more funding, or issuing new shares. In a seed round, it’s typical for investors to have some protective provisions, but they shouldn’t be overly restrictive. Still, these rights are highly standard and often include a class vote on any sale.
2. Board Control
If the VC is asking for a board seat and you only have a small board (e.g., 3 people), they could potentially block a sale if they control one-third or more of the votes. This is why it’s critical to maintain founder-friendly board dynamics at the seed stage. A 3-person board with 2 founders and 1 investor is fine, but if you add another investor later, the balance changes here.
3. Reasonable vs. Overreaching
Most seed VCs are founder-friendly and won’t push for excessive control. They’re betting on you to build the company, not trying to micromanage. But if you see terms like a right of first refusal (ROFR) on a sale or an explicit veto right, you need to push back. These terms can make it harder to sell the company later or negotiate with other buyers.
What’s Fair? Majority Approval
If you have multiple investors, it’s common for a sale to require approval from a majority of preferred shareholders. This is fair and ensures alignment among your investors, but it shouldn’t give a single VC the power to block a sale unilaterally.
Having said that, it's more common that not for each Series (Seed, A, B, C, etc) to have its own protective provisions. Which will include a vote on a sale.
How to Handle It:
Raise less. The less you raise, the less control you give up.
Have a Balanced Board. Roughly equal to your cap table. Most won't push back if you do.
Make one ask in a term sheet. Push back on one control provision. If it's just one ask, you'll often get it.
Only major shareholders need board seats & specific rights. Anyone buying 10% or more has the right to ask. Anyone buying 2% or less is just a passenger.
Don't cross the line. Remember folks are giving you millions of dollars. The commitment back is going for it.
In short, a VC shouldn’t have the ability to block a sale -- unless they’re a major stakeholder, and even then, it’s something you should negotiate carefully.
Remember: if you don't raise too much, most VCs are fine with any sale where they make money. And no one will be happy if they don't.
And once you raise a ton, the stakes go up. As they should.
It's pretty simple in most cases.
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