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Y Combinator Shareholder Agreement

As one of the most prominent startup accelerators in the world, Y Combinator has enabled countless entrepreneurs to build successful businesses. However, the path to success is not always smooth, and disputes between co-founders or shareholders can derail even the most promising venture. That`s why Y Combinator requires all its startups to sign a shareholder agreement, a legal document that outlines the rights and obligations of all parties involved.

A shareholder agreement is a crucial document in any startup`s journey, as it governs how decisions are made, how capital is raised and distributed, and how disputes are resolved. Y Combinator`s shareholder agreement is designed to be fair and reasonable to all parties, while also protecting the interests of the accelerator and its investors.

Here are some key provisions you should be aware of if you`re thinking of applying to Y Combinator:

1.Founders` equity: Y Combinator typically recommends that founders split equity evenly among themselves (e.g., two founders would each get 50% equity). However, the accelerator recognizes that this may not always be feasible or desirable, so it also allows for unequal splits as long as the reasons are clearly stated in the agreement.

2.Vesting: Vesting refers to the process by which founders earn their equity over time, rather than receiving it all upfront. Y Combinator requires that all founders` equity be subject to a four-year vesting schedule, with a one-year cliff (meaning that no equity vests until the first anniversary of the agreement). This helps to align the interests of founders and investors, as it ensures that founders will be incentivized to stay with the company long-term.

3.Non-compete clauses: Y Combinator does not require its startups to sign non-compete agreements, which are clauses that prevent founders or employees from working for competitors or starting competing businesses for a certain period of time. However, the accelerator does include a standard non-solicitation provision, which prohibits founders from poaching each other`s employees or customers.

4.Drag-along rights: A “drag-along” provision allows a majority of shareholders to force a minority to sell their shares in the company in the event of a merger or acquisition. Y Combinator`s shareholder agreement includes a drag-along provision, which means that if the accelerator and the startup`s investors agree to sell the company, all shareholders (including founders) must agree to the sale or risk having their shares sold without their consent.

5.Board composition: Y Combinator recommends that each startup`s board of directors include one representative from the accelerator and one representative from the founders (usually the CEO). However, the agreement also allows for other board compositions as long as they are agreed upon by all parties involved.

Overall, Y Combinator`s shareholder agreement is designed to provide a framework for fair and transparent decision-making, while also protecting the interests of all parties involved. As a startup founder, it`s important to carefully review and negotiate any shareholder agreement before signing, as it will have a significant impact on your business in the years to come.