In order to understand how much control a VC will have over your company (if you accept an investment from one), you will first need to understand how companies are controlled.

There are as many ways to control a company as there are to skin a cat.  Control mechanisms can be segmented into two approaches: formal corporate governance and non-traditional tactics.  Broadly speaking, non-traditional tactics include everything not baked into the governing documents of the corporation.  These tactics might range from leveraging contracts, holding code hostage and taking legal action to illicit activity. 

While venture investors are keenly aware of non-traditional tactics (since they will see to ensure that none are being used), they will assert their control through formal corporate governance.

According to dictionary.com, corporate governance is the relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law.  In practical terms, corporate governance generally refers to the rules created to determine how decisions are made in a company.

At a high-level, after a VC invests in your company big-picture decisions are made in one of three ways:

• Vote of Common Shareholders:  All of the shareholders vote (usually preferred shareholders participate in an as-if-converted-to-common basis) and if a proposal receives a vote exceeding the minimum pre-defined threshold for approval (e.g., majority or two-thirds), then it is approved.  This approach is the most commonly understood by people in business.  
• Vote of Board of Directors:  Other decisions are made by the board of directors.  In this method, if the required percentage of the board votes in favor of a proposal it is approved.
• Vote of Preferred Shareholders:  Some decisions are made solely based upon a vote by a specified class of shares.  In these situations, if at least the minimum required percentage of shares in the specified share class vote in favor of the proposal it is passed.

At a high-level, these three mechanisms drive most of the key decisions in a venture backed startup.  With this understanding of control mechanisms we can dive more deeply into how VCs control startups in the ensuing segments.