Investors rarely love documents, but they rely on them to feel safe. Good paperwork forms the internal risk‑control system and determines whether the company can survive without collapsing into deadlock or litigation.  

Kaisa-Maria Kubpart and Dan-Erik Roosve, attorneys at law and seasoned advisers of startups at the WIDEN’s Legal Clinic at Latitude59 are sharing five important topics that form security mechanisms that investors expect to see before committing and what should be considered when governing them to avoid them becoming VC-dealbreakers. These matters rarely affect day‑to‑day operations, but when pressure hits, they decide whether growth can continue or if everything’s over. 

1. Founder vesting schedules are practical and necessary – Yes, you have to earn the shareholding in your own company 

What happens if a founder who has key know-how leaves early? Without vesting schedules, the answer is often that they keep everything, regardless of whether they contributed for six months or six years. This creates the classic free‑rider problem, where a departed founder holds a meaningful equity stake and benefits while the rest of the team carries, or at least tries to carry, the company forward.  

Equity via a vesting schedule is meant to reward long‑term contribution, not early enthusiasm. The market standard is a four‑year vesting period with a one‑year cliff, meaning no equity is earned at all before the first year, 25% vests at the one‑year mark, and the remainder vests gradually thereafter.  

Market‑standard reverse vesting and cliffs are widely expected by investors and form part of due diligence checklists in most jurisdictions and investors consistently treat missing vesting as a governance red flag. 

2. Non-compete and non-solicitation agreements – VC-s ask for certainty in the uncertain future 

From an investor’s perspective, the absence of any post‑departure protection is a warning sign. Nobody wants to fund a company where key people can walk out tomorrow, start competing, and take the key team or clients with them.  

Non‑compete clauses are about restricting competition during building the business and after someone leaves, whereas non‑solicitation clauses focus on preventing the poaching of employees, customers, or business partners.  

When these clauses are missing or overly aggressive, the result is either no protection at all or an unenforceable clause that looks strong on paper, but collapses when tested. Well‑drafted restrictions are narrow, time‑limited, and clearly tied to protecting legitimate interests like confidential information, customer relationships, and key personnel. 

3. Good leaver and bad leaver clauses – Do you retain your shares after parting ways? 

A Bad Leaver is usually someone who leaves due to serious misconduct, such as fraud, gross negligence, or a fundamental breach of obligations. In such cases, losing equity is part of the deterrence. A Good Leaver is everyone else, illness, mutual agreement, redundancy, or sometimes even resignation, and the treatment is generally more forgiving, allowing the person to keep what has vested. 

Where things go wrong is in the details. Definitions that are too broad can quietly turn “normal” exits into Bad Leaver events or make it worth the risk for the departed person to start litigation. Definitions that are too narrow can make these clauses meaningless to investors.  

4. VETO rights – A final say for critical decisions or corporate minefields? 

Veto rights become visible in moments of crisis, allowing a specific person to block certain decisions, even if everyone else agrees. On paper, these may look as a protective provisions, but they may also become control tools when too broad or micro-managing in nature.  

We often see veto rights granted early and broadly, without understanding how many future decisions they might actually affect. Poorly calibrated veto rights may not create good governance, but instead a deadlock in carrying out the actual business. 

Veto and blocking rights around fundamental actions (new classes of shares, exits, indebtedness) are common, but excessive scope is a frequent negotiation and litigation risk that might get red-flagged upon making the investment decision. 

5. IP assignment – Code is like a poem and you need the rights to the poem to publish the poetry book 

IP issues with business altering consequences can almost always be tracked back to the moment the company was founded.  By default, creators generally own what they create. So, if a founder, employee, or contractor hasn’t correctly assigned their IP to the company, the company is essentially left with nothing, as this is often used as an unpleasant leverage by the IP owner. 

The VCs care and their lawyers will check that every key contribution has been validly transferred to the company. If an ex-founder (or contractor) still owns a key piece, this can create enough uncertainty to scare off a deal.  

The main way to avoid all this is to draft legally sound IP assignments when starting the business. If this wasn’t done at the right moment and time travel is not on the table, there’s still a way to fix it. The company should do an IP “clean-up” before fundraising by (1) listing every contributor and what they built, (2) having each person sign a confirmatory IP assignment to the company (often including pre-incorporation work), and (3) transferring control of key accounts (repo/domain/cloud) into company admin ownership.  

Get free legal guidance at Latitude59 

If any of this sounds familiar, you don’t have to deal with it alone. Meet WIDEN’s team at Latitude59 and visit their Legal Clinic for founders, investors, startups and future founders to get practical guidance before these “small” issues can turn into unnecessary dealbreakers.  

Sign up here for a free appointment (for ticket holders only)!