(Extracted from Venture Deals)
The relationship between the founders at the beginning of the life of a company is almost always good. If it’s not, the term sheet and corresponding financing are probably the least of the founders’ worries. However, as time passes, the relationship between co-founders often frays. This could be due to many different factors: the stress of the business, competence, personality, or even changing life priorities like a new spouse or children.
When this happens, one or more founders will often leave the business—sometimes on good terms and sometimes on not such good terms. Some investors know that it’s best to anticipate these kinds of issues up front and will try to structure terms that predefine how things will work in these situations. The investors are often trying to protect the founders from each other by making sure things can be cleanly resolved without disrupting the company more than the departure of a founder already does.