What is Class F common stock?

Extremely founder-friendly provisions in the certificate of incorporation for companies. These provisions include a special class of super-voting common stock, called "Class F" common stock, which is named for "Founders."

    * Voting.  The COI includes Class A common stock, which has one vote per share, and Class F common stock, which has 10 votes per share.  Companies such as Google, Martha Stewart Living Omnimedia, Broadcom and others have super-voting common stock.  Super-voting common stock is sometimes seen in companies where founders or a family wish to maintain control of a company after obtaining outside investment.

    * Protective provisions.  Similar to protective provisions in a Series A preferred stock financing, there are certain fundamental actions that cannot be taken without the consent of holders of more than 50% of the Class F common stock.  The Class F common stock protective provision basically provides:

    As long as any of the Class F common stock is outstanding, consent of the holders of at least 50% of the Class F common stock will be required for any action that (i) alters any provision of the certificate of incorporation or the bylaws if it would adversely alter the rights, preferences, privileges or powers of or restrictions on the Class F common stock; (ii) changes the authorized number of shares of Class F common stock; (iii) authorizes or creates any new class or series of shares having rights, preferences or privileges with respect to dividends or liquidation senior to or common stock on a parity with the Class F common stock or having voting rights other than those granted to the Class F common stock generally; (iv) approves any merger, sale of assets or other corporate reorganization or acquisition, or the liquidation or dissolution of the Company; (v) increase the size of the board; or (vi) declares or pays any dividend or distribution.

    * Directors.  Holders of Class F common stock are allowed to elect one director.  The Class F director has 2 votes per director, as opposed other directors, who have one vote. Section 141(d) of the Delaware General Corporation Law permits a company to have directors with more than one vote per director. This may address a situation where there is a desire to keep the size of a board small, but ensure that board "control" is maintained by a particular group of stockholders.

The Class F common stock and the Class A common stock otherwise participate equally with respect to dividends and distributions and other economic rights.  The Class F common stock can be converted into Class A at any time at the option of the holder, and will automatically convert if the holder dies or if the Class F common stock is transferred to someone other than another Class F holder or an entity for the benefit of a Class F holder.

Whether any of these provisions will survive after a typical Series A venture financing depends on the negotiating position of the parties.  At a minimum, people like Adeo and blogs like Venture Hacks are educating founders about financing terms that may be detrimental to founders.

[Update:  Class F common stock is discussed in Techcrunch, VentureBeat, PE Hub and the WSJ.  In addition, Marc Andreessen has a blog post strongly supporting dual class stock structures in certain circumstances.]