Why it matters
Investors often invest because of a specific founder — usually the technical or product founder whose absence would change the thesis. A key-person clause is the structural expression of that. It gives the investor extra leverage if that person becomes unavailable. The fair version is narrow: a single named founder, an enhanced consent right on hiring the replacement CEO, with the right falling away after the replacement is in place. The unfair version names multiple founders, gives the investor a unilateral right to convert preferred to demand redemption, or hands them additional board seats permanently.
How to negotiate
Limit to a single named founder. Limit the enhanced rights to (a) participation in the search for the replacement, and (b) approval of the replacement, with both rights expiring on the appointment of the replacement. Reject enhanced economic rights (redemption acceleration, additional anti-dilution) — these convert a real-life event into a financial windfall for the investor. Add a sunset: the key-person right falls away if the named founder remains in role for 36 months post-investment.
Example language
How this clause typically appears in a term sheet. Read it carefully — predatory language is often buried in routine paragraphs.
If [Named Founder] ceases to serve as the Chief Executive Officer for any reason, the Investors shall be entitled to (i) appoint one additional director, and (ii) require redemption of their shares at the original purchase price plus any accrued dividends.
TURNSHEET provides intelligence, not legal advice. This page describes typical market behaviour and common negotiation tactics; your specific deal may have nuances that change the analysis. Always review your term sheet with qualified legal counsel before signing.