Most founder–investor conflicts arise not from bad intent, but from unclear expectations.
This prenup is designed to align incentives, define boundaries, and prevent avoidable disputes before capital is deployed.
Parties
This Agreement (“Agreement”) is entered into on [Date], by and between:
- Investor: [Name / Entity]
- Founder(s): [Name(s)]
- Startup: [Company Name]
This document records mutual expectations, principles, and conflict-prevention mechanisms governing the relationship between the Founder(s) and Investor.
1. Purpose
Both parties acknowledge and agree that:
- This is a long-term partnership, not a transactional relationship.
- The purpose of this document is to prevent misaligned expectations, governance disputes, and emotionally driven decision-making.
- In the event of disagreement, this Agreement shall serve as a reference for fair conduct, not as a weapon for enforcement.
2. Founder Commitments
The Founder(s) agree to:
- Act at all times in the best interest of the Company, not personal gain.
- Maintain full transparency on:
- Financials
- Capitalisation table
- Related-party transactions
- Ensure:
- No hidden salaries, side arrangements, or shadow equity
- Full-time commitment to the Company (unless explicitly disclosed and approved)
- No dilution manipulation, ESOP misuse, or undisclosed shareholders
- Uphold ethical conduct:
- No fraud, regulatory non-compliance, or reputational risk
Breach: Any material breach may trigger investor governance protection mechanisms.
3. Investor Commitments
The Investor agrees to:
- Not interfere in day-to-day operations of the Company.
- Act as a supportive partner, not an operational controller.
- Refrain from:
- Public criticism or reputational harm
- Forcing premature exits
- Pressuring founders for artificial growth or vanity metrics
- Respect founder autonomy except in cases of material governance or ethical breach.
The Investor is a partner, not a boss.
4. Governance & Decision Rights
Decision-making authority shall be clearly defined as follows:
| Decision Type | Authority |
|---|---|
| Daily operations | Founder(s) |
| CXO hiring / termination | Founder(s) with Board consultation |
| New funding rounds | Board |
| M&A / Sale of Company | Supermajority Board approval |
| Pivot / Shutdown | Board |
| Founder salary changes | Board |
5. Communication Protocol
Both parties agree to:
- Monthly MIS and performance reporting
- Quarterly strategic and governance reviews
- Avoid surprise decisions or last-minute escalations
- Address difficult issues early, not after damage occurs
- Avoid informal “WhatsApp governance” for serious decisions
6. Capital & Dilution Principles
- The Investor acknowledges that startups carry inherent risk.
- The Founder acknowledges that capital is sacred.
- Both parties commit to:
- Disciplined capital deployment
- No reckless burn or ego-driven hiring
- No vanity expansion without business justification
- Future dilution, if required for growth, shall be accepted by both parties in good faith.
7. Exit Philosophy
The parties align on the following exit principles:
- Possible outcomes include:
- IPO
- Acquisition
- Strategic sale
- Expected investment horizon: [Typically 5–10 years]
- No forced exit unless triggered by:
- Fraud
- Founder abandonment
- Irrecoverable governance failure
8. Failure Protocols
If a Founder underperforms:
- Coaching and support
- Governance oversight
- Replacement (last resort only)
If an Investor becomes disruptive or toxic:
- Structured mediation
- Buyback or secondary transfer options, subject to feasibility
9. Conflict Resolution Mechanism
Disputes shall be resolved in the following order:
- Direct and honest discussion
- Mediation by a neutral advisor
- Board-level review
- Arbitration (preferred over litigation)
10. Ethics Clause (Non-Negotiable)
Zero tolerance for:
- Fraud
- Misuse of funds
- Capital table manipulation
- Harassment or misconduct
- Illegal activity
Any violation triggers immediate governance protection rights.
11. Emotional Reality Clause
Both parties acknowledge that:
- Startups are inherently volatile
- Stress and disagreement are inevitable
- Trust must endure through poor quarters and setbacks
We choose partnership over ego.
12. Signatures
Investor: ___________________________
Founder(s): _________________________
Date: _______________________________
Optional Advanced Clauses (For Sophisticated Structures)
Subject to mutual agreement, the following may be incorporated:
- Founder vesting / reverse vesting
- Good leaver / bad leaver provisions
- Enhanced information rights
- Anti-dilution mechanics
- Follow-on investment rights
- Founder health / incapacity clause
- Investor replacement mechanism
- Strategic alignment memo
- Culture and ethics charter