When Boards Betray: Directors' Hidden Conflicts in Startup Funding Rounds

This article is written by Tejal Vairagade pursuing B.A.LL.B from GH Raisoni University, Saikheda, M.P. School of Law.

The modern startup board is a curious thing; it is the startup founder’s best friend,

and with capital in the room, often a worst enemy. In this piece, we will explore

how directors on startup boards generate structural, financial, and relational

conflicts of interest when funding is on the table, and how these conflicts often

operate outside of the founder’s awareness, inexorably shaping the startup’s

destiny. Through the lens of corporate law, the mechanics of investor-favored terms in standard form term sheets, and a selection of illustrative cases and governance failures, we expose how the legal rules are sound in principle but defective in practice.

The time has come for required reforms to startup board practices,

including better disclosure, an independent director requirement, and founder

protective provisions.

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