Can Founders limit their liability on representations?
As an initial matter, founders are not always asked to make representations and warranties personally. On the East Coast, such representations are fairly common (but by no means universal) in early stage financings and less common in later stage financings. They are virtually unheard of at all stages on the West Coast. If founders are required to make representations and warranties, it is generally possible for them to place substantial limits on their liability for breaches of those representations and warranties. Most venture capital investors view founders’ representations as a means for making sure that the founders are paying full attention to the statements being made about their company in the financing documents, and as a means for shifting the investors’ and the founders’ relative shareholdings in the company to compensate for any breach. They do not generally view them as a way to gain recourse against the founders’ personal assets. Accordingly, founders can generally negotia
