Founder restrictions in Dutch venture capital transactions
In Dutch venture capital transactions, founder arrangements are not only about shares, valuation and investor rights. They also deal with a more practical question: what may a founder do during and after his or her involvement with the company?
For investors, this matters. In many startups and scale-ups, the founders hold the key know-how, commercial relationships, product vision and network. If a founder leaves and immediately starts or supports a competing business, this may harm the company’s value, future fundraising and exit prospects.
For founders, the balance is equally important. A founder should not be restricted more than necessary. Dutch VC documentation should therefore protect the company without creating an overly broad or hard-to-enforce restriction.
In Dutch venture capital transactions, founder arrangements are not only about shares, valuation and investor rights. As part of the broader Venture Capital Insights series on Dutch BV financing, investor rights and growth company governance, this article focuses on a more practical question: what may a founder do during and after his or her involvement with the company?
Common founder restrictions
Founder restrictions in Dutch VC rounds usually appear in several documents, including the shareholders’ agreement, investment agreement, employment agreement, management agreement or services agreement.
Common provisions include:
- confidentiality obligations;
- intellectual property assignment;
- restrictions on competing activities;
- non-solicitation of employees;
- non-solicitation of customers and suppliers;
- founder vesting;
- good leaver and bad leaver provisions;
- transfer restrictions and lock-up arrangements.
These provisions should be drafted as one coherent package. A broad non-compete is often not the best or only solution. In many cases, confidentiality, IP assignment, non-solicitation and leaver provisions provide more targeted protection.
Shareholder role versus operational role
A key distinction is the difference between a founder as shareholder and a founder as employee, managing director or consultant.
A shareholders’ agreement may include restrictions linked to the founder’s position as shareholder. These provisions are usually aimed at protecting the company and the other shareholders against competing activities or misuse of confidential information.
An employment or management agreement may include restrictions linked to the founder’s operational role. These restrictions require separate attention. Under Dutch law, non-compete clauses in employment relationships are subject to specific requirements and may be challenged if they are too broad or insufficiently justified.
The documents should not simply repeat the same wording in every agreement. The restriction should match the founder’s role, the company’s business and the legitimate interest being protected.
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Scope matters
The most important drafting point is scope.
A founder restriction should be limited to the actual business of the company. It should not cover unrelated sectors or speculative future activities. The geographic scope should also be reasonable in light of the markets in which the company operates or has concrete expansion plans.
The same applies to duration. A restriction during the founder’s active involvement with the company is different from a restriction after departure. The broader and longer the restriction, the more important it is to justify why it is needed.
It is also sensible to include clear carve-outs. Passive investments, listed securities, fund interests or small minority stakes should not automatically be treated as competing activities if the founder has no strategic influence or operational role in the competing business.
Link with leaver provisions and vesting
Founder restrictions should be aligned with the vesting and leaver provisions.
If a founder leaves as a bad leaver because of serious misconduct or competing conduct, the consequences may include loss of unvested shares, compulsory transfer of shares or a reduced transfer price. If a founder leaves as a good leaver, a broad post-departure restriction may be harder to justify.
The shareholders’ agreement should therefore be internally consistent. The non-compete, non-solicitation provisions, vesting schedule, leaver definitions and transfer provisions should work together.
Practical takeaway
In Dutch VC transactions, the objective should not be to draft the broadest possible founder restriction. The objective should be to create a focused and enforceable protection package.
For international investors, this means that US or UK-style founder restrictions should be adapted to the Dutch BV context. For founders, it means that restrictions should be negotiated carefully, especially where they continue after departure.
A well-drafted Dutch VC package protects the company’s confidential information, IP, team, customer base and equity structure, while avoiding unnecessary enforceability risk.
Contact us
If you are negotiating a Dutch VC financing round and need advice on founder restrictions, shareholder agreements, investor rights or Dutch BV governance, please contact Dirk de Waard at dirk.dewaard@viottalaw.com.
