Which decisions investors usually want approved in advance and how deals formalise them

## The founder’s problem

In an early funding round, founders often spend most of their time on valuation, dilution and the amount being invested, while governance questions are left for later. That is usually where the next conflict begins.

As long as the company is growing smoothly, the gap may stay invisible. But the moment the business wants to raise another round, change share rights, take on meaningful debt, sell assets or amend constitutional documents, the parties discover that they never aligned on which decisions management may take alone and which ones require prior approval.

That is why the real question is not whether an investor wants influence “in general”. A better question is much narrower: which company decisions do investors usually ask not to leave until after closing.

## Short answer

In early-stage venture deals of this kind, those decisions often fall into five groups:

1. capital and share decisions;
2. major financial commitments;
3. governance and board structure decisions;
4. strategic transactions and structural changes;
5. vesting and founder leaver provisions.

These points are usually not captured through one broad sentence such as “the investor participates in management”. In real deals, they are spread across several layers: first the term sheet, then the SPA, the shareholders’ agreement, the constitutional documents and the board procedures.

Another qualification matters. This article relies on the GOV.UK guide Track 2: Term Sheet Key Points and Guardrails (2 December 2025), available at https://www.gov.uk/government/publications/unlocking-space-for-investment-growth-hub/track-2-term-sheet-key-points-andguardrails. It describes market practice mainly for early-stage venture deals in an English-law style contracting environment. It is a useful framework, but not a universal rule for every country or every investment.

## Why investors ask for these approvals at all

The logic is usually straightforward. After investing, the investor does not run the company day to day in the way the founders or executives do. But the investor still wants protection against decisions that can sharply change share value, control, risk profile or exit prospects.

That is why investors usually do not ask to approve every operational detail. Their focus is on decisions that can:

- dilute their stake;
- change the economic rights attached to shares;
- increase the financial risk of the company;
- alter control over key assets;
- shift the balance of power in governance;
- affect the retention of founders and key team members.

So the issue is usually not day-to-day interference. It is advance visibility and approval over decisions that can reshape the deal itself.

## Where this is formalised in practice

The sequence is usually familiar.

First, the parties align the general framework in the term sheet. That is where the deal structure, valuation, share class, board composition, investor board seat and the list of reserved matters are typically outlined.

Then those points are carried into more detailed documents. Depending on the transaction, these may include the SPA, the shareholders’ agreement, the constitutional documents and specific board procedures. Those procedures may define quorum, voting mechanics, the number of directors, the right to appoint an independent director and the right to appoint an investor representative.

This is why founders should review the whole document package rather than only the headline economics. A short approval right in the term sheet may take on a very different practical meaning once the final documents define exactly how it works.

## 1. Capital and share decisions

This is usually the first and most sensitive category.

Investors almost always pay close attention to anything that can alter the capital structure of the company. In practice, this usually includes:

- issuing new shares;
- changing rights attached to existing shares;
- creating a new share class;
- reallocating rights between ordinary and preferred shares;
- creating or changing the option pool.

Why is this so important? Because this is where ownership dilution, the economic rights attached to shares and the balance between founders, employees and future investors can all change.

For a founder, the practical implication is simple. If the documents contain such approval rights, the next capital step cannot be treated as a mere company law formality. It becomes a contractual investor-rights question.

## 2. Major financial commitments

The second common category covers decisions that change the company’s financial risk.

The source directly confirms one key example here: significant borrowing. This is often treated as a reserved matter because it can alter the company’s risk profile without changing the cap table immediately.

The logic is easy to see. The company may keep the same ownership structure and still become far riskier because of a major debt obligation, new leverage or restrictions that affect the next round.

This is also where it is important not to overstate the evidence. The source directly supports significant borrowing as a typical example. A wider list of financial restrictions may appear in individual deals, but that broader list has to be confirmed from the actual transaction documents and applicable law rather than treated as universally proven by one market guide.

## 3. Governance and board structure decisions

The third category concerns who governs the company and how key decisions are made.

In early-stage rounds, investors often negotiate:

- how many directors will sit on the board;
- who may appoint them;
- whether the investor gets its own board seat;
- whether an independent director is required;
- how board decisions are taken.

This is not a side issue. Even where the reserved matters list looks short, investor influence can still be strong through board composition, quorum rules and voting mechanics.

That matters for founders. Sometimes the real constraint does not come from a long veto list at all. It comes from the fact that a key decision cannot be passed without a certain board composition or participation.

## 4. Strategic transactions and structural changes

The fourth category covers decisions that change the company as the object of the investment.

The source directly confirms two important examples here: asset sales and amendments to constitutional documents. Both can affect value and control at the same time.

In practical terms, investors usually want advance visibility over whether the company may:

- sell important assets;
- rewrite the basic internal rules of the company;
- change the structure so materially that the original deal loses its meaning.

This is also the area where founders should read not only the list of decisions, but the approval mechanics around them. In some deals, board approval is enough. In others, the consent of a majority of investors is needed. In still others, the right sits with a major investor or a specially defined class.

## 5. Vesting and founder leaver provisions

The fifth category is about more than equity. It is also about the stability of the team after the investment.

An investor is not just buying a stake in a company. The investor also wants comfort that key founders cannot leave immediately while keeping the full economic position as if they had stayed to build the business.

That is why the documents often address:

- vesting terms;
- what happens to founder shares on departure;
- the distinction between good leaver and bad leaver;
- the period treated as market-standard.

The source directly gives a common example here: a four-year vesting structure. But the same caution applies. This is an illustration of market practice, not a mandatory rule for every transaction.

## How the mechanism works as a system rather than one clause

A common founder mistake is to look for the whole mechanism in one paragraph. In practice, it is usually distributed.

The term sheet sets the architecture.

The SPA and shareholders’ agreement add the detailed contractual machinery.

The constitutional documents lock in part of the structure at company level.

The board procedures then determine how meetings are called, what quorum applies, which decisions pass by ordinary majority and which require a separate consent from a specified party.

This means that two deals may look similar at headline level and still produce very different control outcomes. Everything depends on who must approve the decision and what happens if that approval is withheld.

## A hypothetical example

Imagine a startup raising an early round from one fund and two angel investors.

At negotiation stage, the founders believe the investor is asking for only a few protections: one board seat, approval over new share issues and approval over major debt.

But the final documents create a broader system.

The investor holds a board seat.

Any change to share rights needs separate consent from a specified investor class.

Major borrowing requires a dedicated approval under the reserved matters list.

The sale of significant assets is also carved out as a consent matter.

Two founders are subject to four-year vesting with good leaver / bad leaver rules.

Formally, no single clause gives the investor “total control”. But taken together, the package means the team cannot sharply change the cap table, the risk profile or the continuity of the founding team without a defined approval route.

That is why it helps to read a financing not only as a price for capital, but as a map of management constraints.

## A practical review tool for founders

As an author’s working method, not as a regulator’s mandatory checklist, it helps to test the documents through five questions.

### 1. Where is the list of approval matters located?

Find the reserved matters or investor consents section in the term sheet and in the final documents.

### 2. Who exactly gives the approval?

That may be the board, a majority of investors, a major investor or holders of a specific class.

### 3. Does the short deal summary match the full wording?

What appears as one line in the term sheet may become a much more complex procedure in the SPA.

### 4. How do approval rights interact with board structure?

Check whether investor influence is strengthened through board seats, quorum or voting mechanics.

### 5. What happens if a founder leaves?

Review vesting, good leaver / bad leaver classification and the share consequences for key founders.

## What founders should not confuse

There are three common mistakes here.

First, assuming that the reserved matters list is always the same. It is not. The source itself does not confirm a universal and exhaustive list for all deals.

Second, assuming that only veto rights matter. In practice, investor influence may be spread across reserved matters, board composition and share rights.

Third, importing an English-language market template into any jurisdiction without checking local law. The commercial logic may be similar, but the legal implementation can differ.

## Vitaliy’s position

A strong term sheet is not one where the parties discuss valuation only. It is one where the post-closing decision map is already visible: which decisions management may take alone, and which ones must be approved separately.

If that map is not discussed early, the conflict usually reappears at exactly the wrong moment, when the company needs to move quickly: raise another round, change capital terms, take financing or keep key founders in place.

## Conclusion

Investors usually want advance approval not over everything, but over decisions that affect capital, risk, governance, business structure and team continuity.

For founders, the practical step is therefore to read the deal not only through valuation and ticket size, but through the approval map: which matters are reserved, who approves them, how the board is structured and what happens to founder equity on departure.

## Sources

GOV.UK. Track 2: Term Sheet Key Points and Guardrails. Published 2 December 2025. https://www.gov.uk/government/publications/unlocking-space-for-investment-growth-hub/track-2-term-sheet-key-points-andguardrails

Disclaimer: General information, not individual legal or financial advice. The use and effect of these mechanisms depend on jurisdiction, the specific deal documents and final negotiated wording.