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"Secrets of Sand Hill Road" is the new book from Andreessen Horowitz venture capitalist Scott Kupor, blurbed by former Google CEO Eric Schmidt as being "the definitive book on navigating VC."

The big picture: The capital that VCs provide is no longer scarce, says Kupor. It's entrepreneurs who deserve the real credit for building successful companies, not the people who staked them. And yet, he explains, VCs nearly always receive preferred stock, which gives them many more economic and governance rights than the firm's founders or employees.

What they’re saying: Kupor walks his reader through a typical term sheet where a group of VCs is taking a 20% stake in a startup company for $10 million. The lead investor, with about a 10% stake, will control a majority of the preferred stock. Pretty standard "protective provisions," explains Kupor, mean that the VC investor will "get to vote on" new classes of stock, "have a say in" certain corporate actions and recapitalizations, and "be able to weigh in on" changes to the employee option pool.

  • What they’re not saying: Kupor neglects to mention that these provisions don't just give the preferred shareholder a vote or a seat at the table; rather, they give the VC unilateral veto power over all such actions. It's not clear why a 10% shareholder should be so powerful, especially given that the ability to fund the company is much less rare than it used to be.
  • I asked Kupor about this, and he said that he was open to the idea of VCs taking common stock instead of preferred stock — on the understanding that valuations would be lower, as a result. That seems like a good idea to me, in a world of unicorns where no one is complaining about valuations being too low.

My thought bubble: Investing in common stock is certainly risky. In a worst-case scenario, the founders could just liquidate the company immediately, take 80% of the $10 million for themselves, and give just $2 million back to the VCs. But VC is a risky business. If VCs don't have a basic level of trust in founders, they shouldn't be backing those businesses in the first place.

Go deeper

Tech scrambles to derail inauguration threats

Illustration: Sarah Grillo/Axios

Tech companies are sharing more information with law enforcement in a frantic effort to prevent violence around the inauguration, after the government was caught flat-footed by the Capitol siege.

Between the lines: Tech knows it will be held accountable for any further violence that turns out to have been planned online if it doesn't act to stop it.

Dave Lawler, author of World
6 hours ago - World

Uganda's election: Museveni declared winner, Wine claims fraud

Wine rejected the official results of the election. Photo: Sumy Sadruni/AFP via Getty

Yoweri Museveni was declared the winner of a sixth presidential term on Saturday, with official results giving him 59% to 35% for Bobi Wine, the singer-turned-opposition leader.

Why it matters: This announcement was predictable, as the election was neither free nor fair and Museveni had no intention of surrendering power after 35 years. But Wine — who posed a strong challenged to Museveni, particularly in urban areas, and was beaten and arrested during the campaign — has said he will present evidence of fraud. The big question is whether he will mobilize mass resistance in the streets.

Off the Rails

Episode 1: A premeditated lie lit the fire

Photo illustration: Sarah Grillo/Axios. Photo: Chip Somodevilla/Getty Images

Beginning on election night 2020 and continuing through his final days in office, Donald Trump unraveled and dragged America with him, to the point that his followers sacked the U.S. Capitol with two weeks left in his term. Axios takes you inside the collapse of a president with a special series.

Episode 1: Trump’s refusal to believe the election results was premeditated. He had heard about the “red mirage” — the likelihood that early vote counts would tip more Republican than the final tallies — and he decided to exploit it.

"Jared, you call the Murdochs! Jason, you call Sammon and Hemmer!”