How a founder gets fired by his own board

Transcript

Alex started his company in his bedroom. Seven years later, he's its biggest shareholder. And this morning, his own board fired him. The vote was three to two. And it all comes down to something he gave away one round at a time. Board seats. That's three one. Day one, Alex owns everything. And the board is one person. Alex, he's the CEO because he says so. Then he raises a series A. The investor wants to say, so the board grows to three seats. Two for Alex's side, one for the investor. Alex still has the majority. It feels safe. The series B, a new investor wants a seat too. To break ties, they add an independent director. Someone both sides agree on. Now the board has five seats. Alex, his first engineer, two investors, and the independent. Here's what most founders miss. Shareholders elect the board, but the board hires and fires the CEO. And the investment papers decide who fills each seat. So Alex owns more of the company than anyone and still holds one vote out of five. Then growth slows. The investor's want to prove an operator. The independent director agrees. Three votes against two. Alex is out. It gets worse. One of the founder seats is written as the CEO seat. So the new CEO doesn't just take Alex's job. He takes Alex's chair on the board too. And if any of Alex's shares haven't vested yet, the company can buy them back for what he paid. Fractions of a cent. Alex built the company, and now he's the one holding dead equity. This isn't hypothetical. In 1985, Steve Jobs lost a boardroom fight to John Scully. The CEO Jobs had recruited himself. The board took away his Mac team, and months later, he left the company he co-founded. In 2023, OpenAI's board fired Sam Altman on a video call. He was back within a week, but only after more than 700 employees threatened to quit. So how do founders stay in charge? Keep the majority of board seats as long as you can. Give up seats slower than you give up shares. Pick the independent director like your job depends on it because it does. Or do what Mark Zuckerberg did. His shares carry 10 votes each. He owns a small slice of meta, but controls more than half the votes. No board can fire him because he picks the board. Because shares decide who gets rich, the board decides who stays.

Transcribed automatically from the video, so small errors are possible.