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Good Glamm’s Darpan Sanghvi warns founders: “Every investor having a veto is a ticking time bomb”
Darpan Sanghvi noted that many problematic clauses are introduced during a startup’s early fundraising rounds, often becoming harder to unwind later. “Once you give superior rights to one investor, the next one will ask for more. Aligning everyone becomes harder with each round.”
Beyond the legal fine print, Sanghvi also offered advice on softer aspects of building investor relationships. “Look at how good your chemistry is with the Partner who will be working with you. That relationship is truly like a marriage,” he wrote.
Good Glamm Group’s founder Darpan Sanghvi has issued a cautionary note to startup founders negotiating their Shareholders Agreements (SHA), flagging the dangers of granting individual veto rights to every investor on the cap table.
Sanghvi recounted an interaction with a founder who had reached out for advice. “One massive red flag jumped out,” he wrote. “Every investor was seeking an individual personal veto on reserved matters.”
According to Sanghvi, such a clause can paralyse decision-making and derail future fundraising. “This is a recipe for disaster and can be fatal,” he warned.
Instead, he advocates for a collective approval mechanism based on Investor Majority — defined by both shareholding percentage and investor count — to ensure decisions reflect broad consensus rather than individual holdouts.
Practical SHA Advice from a Founder-Operator
Sanghvi also outlines several key SHA clauses that early-stage founders should negotiate carefully, especially in their first institutional round. These include:
Founder board representation via a clear formula
Transfer restrictions on investor shares to prevent sales to competitors
Freedom to sell up to 25% of founder equity without investor approval
Anti-dilution protections limited to broad-based weighted average
Liquidation preferences capped at 1x and structured as pari passu unless distressed
Drag-along rights structured on a pro-rata basis
MFN clauses with carefully crafted caveats for future protection
Separate treatment of share-swap or sweat equity partners — outside the main SHA
Performance-based MSOPs (Management Stock Option Plans) for founders linked to valuation milestones
Sanghvi noted that many problematic clauses are introduced during a startup’s early fundraising rounds, often becoming harder to unwind later. “Once you give superior rights to one investor, the next one will ask for more. Aligning everyone becomes harder with each round.”
He emphasized that a well-structured SHA must work for the long-term health of the company, not just the founders or investors. “Good investors understand that,” he added.
"It’s Like a Marriage"
Beyond the legal fine print, Sanghvi also offered advice on softer aspects of building investor relationships. “Look at how good your chemistry is with the Partner who will be working with you. That relationship is truly like a marriage,” he wrote.
Drawing from his own entrepreneurial journey, Sanghvi said some of his investors treated him like a brother and stood by him even when things went south. “When I failed, it was so much harder to look them in the eye. But that’s also what’s pushing me to keep going — to find a way to make it right for them and everyone involved.”
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