[parasubvert]

Redemption rights are relatively rare, and even if such a clause were in the funding, it would be after a longish period after close (5-7 years). Usually it's for older funds.

Thus they're not much of a stick. The only stick is the board voting to fire (or strongly encourage resignation of) the all or part of the founding management team, which if you're already on life support, can be a win/win: founders keep their shares, and someone potentially takes the company to profitability and exit. I can think of at least one major software IPO in the past 15 years where this made everyone (including the ousted founder) a lot of money.

[danieltillett]

Are they rare or just rarely enforced? I can't say that my experience is up to date, but back in the day when I was actively looking for VC funding they were in all the agreements pushed my way.

If they are rare in agreements then more founders should "pivot" to a lifestyle business after raising a whole lot of cash. With a couple of million dollars in the bank you can certainly build a very nice low risk business that will provide a great income :)

[parasubvert]

I'm not a VC so I don't have an eye on the current trend, but a few years ago they were in less that 20% of deals in a particular quarter: http://venturebeat.com/2011/07/04/demystifying-the-vc-term-s...

So, perhaps not exactly "rare", but uncommon. And rarely used, even if included. Back in 2008ish when I was more into fundraising, I didn't see them.

[danieltillett]

Have they been replaced with anything else? Without redemption rights what do VC have to keep control of founders?

[nostrademons]

Not investing in founders that aren't going for the home run.

Ultimately many of the good VCs would rather not "keep control" of founders. They'd rather just pass on the investments that look like they will become a big drain on VC partner time & attention in the future. A startup where there's a big power struggle over company directions and the board has to kick out the founders is far worse than not making the investment in the first place: it consumes a scarce resource (partner bandwidth) that could be much better spent searching for new opportunities. Much better to seek out founders where your goals are aligned to begin with and then trust them.

The difference in your experience and parasubvert's could be explained if the VCs you dealt with believed that your startup has a trajectory that would make it likely that it would become a lifestyle business, contrary to their interests. Then they'd want a way to claw back their capital if it looked like they would never see an exit.

[danieltillett]

Yes but how do they know this in advance? Up until quite late in the process the founder control the majority of the company. I am amazed that more founders have not gone feral.

My experience is from sometime ago (long before YC). Interestingly my business did pivot to being a lifestyle businesss, not out of choice, but because I could not get VC funding. My only regret is that it took my customers longer to learn about our products than they would have if I had not had to bootstrap.