“Subject to board approval”
“As determined in good faith by the board”
Have you ever seen one of those quotes? 👆
- In a term sheet?
- In investment closing docs?
- In an employment contract?
- Or in an options agreement?
I’m sure your lawyer has… so you should ask them for legal advice, not me! #disclaimer
But I do want to share some personal experience around this topic.
So you know why it’s important to talk to lawyers about this kind of thing:
If it comes up as you’re negotiating a job offer or an investment.
What can happen, when you see those words.
That board approval might be delayed.
Board meetings can take time to organize, and decisions and approvals might get postponed:
Intentionally or unintentionally.
So your approval may be hanging for a while.
Or hanging long enough, where this ends up happening 👇
The board changes its mind about the deal they made.
A CEO may ink a deal with you.
At the time, the board may have been 100% bought in.
But keep in mind that “subject to board approval” means the board can change their mind:
For whatever reason they like.
“Sorry, we decided not to approve it.”
The CEO may NEVER have had board buy-in…but just didn’t realize it.
If you’re negotiating something that boards usually have a say in …
… but you’re not negotiating directly with the board:
Ask the CEO very directly if they have 100% board buy-in.
If they say “No” … you don’t yet have a deal.
If they say “Yes” … one of your next questions might be:
“So why does it say here in the contract that it is subject to board approval…didn’t the board approve it?”
The board composition could change.
For each major round of funding:
You usually see a board seat or 2 going to the new investor coming in.
Those new board members may not like the deal the old board gave you.
Which means the noobs can vote against you getting the thing you were promised.
Oh, and of course, once they’re in that boardroom …
… they can lobby for the rest of the board to change their minds, too.
Remember:
This stuff is complicated and nuanced.
You should pull in your lawyer to help you with it if it comes up.
Just wanted to give you a heads up that this is a thing.
