The PE Deal Series · Post D.18
View the full series →The Restrictive Covenant Stack
The non-compete is the restriction founders know about. The non-disparagement and confidentiality provisions are the ones that do the most damage.
Most founders walk into a PE deal braced for one restriction: the non-compete. They know they'll be barred from running a competing business for two or three years. They plan for it. They price it in. They sign.
What they don't plan for is everything stacked behind it.
The Fence and the Muzzle
A non-compete is a fence. It marks where you can't go and who you can't take with you. You can see a fence. You can measure it. And you can wait for the day you climb over — because a non-compete expires.
A muzzle is different. You can't see it from the outside. It doesn't stop you from going anywhere. It stops you from saying anything. And unlike the fence, the muzzle in the Crossfield deal was built without a gate.
That's the Restrictive Covenant Stack. Two of its four covenants are fences — they limit what you can do. The other two are the muzzle — they limit what you can say about what was done to you. Founders negotiate the fences. They barely read the muzzle.
The Crossfield Covenant Stack
James and Dan signed four interlocking restrictive covenants as part of the Crossfield transaction. Each operated independently. Together, they created a web of restrictions that extended well beyond the non-compete's expiration.
Non-compete — a fence. Three years. James and Dan couldn't own, operate, or invest in any commercial facilities services business within the company's geographic footprint. Standard for the industry. Negotiated. Understood.
Non-solicit — a fence. Three years. Neither founder could recruit, hire, or solicit any Crossfield employee or contractor. James couldn't call a project manager he'd worked with for 15 years. Dan couldn't hire his own former sales team for a new venture. The restriction applied even if the employee initiated contact.
Non-disparagement — the muzzle. Indefinite survival. Neither founder could make any public or private statement that could be construed as negative about Ridgeline, its affiliates, the transaction, or the management of Crossfield post-close. The word "construed" did the heavy lifting — it didn't require intent. If Ridgeline determined a statement was disparaging, the clause was triggered.
Confidentiality — the muzzle. Indefinite survival. All transaction terms, deal structure, financial details, and post-close performance were classified as confidential. James and Dan couldn't discuss the economics of their own deal — not with future business partners, not with other founders, not publicly.
The non-compete expires. The non-solicit expires. The non-disparagement and confidentiality provisions don't.
Here's where the stack becomes a weapon. James's employment agreement — analyzed in Your Employment Agreement Is the Most Dangerous Document in the Deal — defined "for cause" to include any breach of these covenants. One offhand remark to a former colleague could trigger for-cause termination, which forfeits his unvested equity incentive plan (EIP) allocation and claws back money he's still owed. The stack doesn't just restrict behavior. It wires every dollar James has left on the table to a tripwire he can't see.
Deal Spectrum: 8/10
The left column shows what a founder-favorable version of this term looks like. The right column shows what Crossfield signed.
The mental model is the Restrictive Covenant Stack. Founders negotiate the non-compete because it's the restriction they can see. The non-disparagement and confidentiality provisions operate below the surface — less visible, less negotiated, and more punitive. The stack doesn't just limit what the founder can do. It limits what the founder can say about what was done to them.
The Crossfield Moment
Fourteen months after closing, Dan had coffee with a founder who was evaluating a PE offer. The founder asked how Dan's deal had gone.
Dan paused. He thought about the confidentiality provision. He thought about the non-disparagement clause. He thought about what "construed" might mean if Ridgeline ever found out.
"It went fine," Dan said.
Founder Protection Tips
Make the non-disparagement mutual. If the founder can’t speak negatively about the buyer, the buyer shouldn’t be able to speak negatively about the founder — and both provisions should have a defined expiration.
Time-limit all covenants, including confidentiality. Indefinite survival provisions are leverage tools, not protections — push for three to five years on every restriction in the stack.
Carve out personal financial planning and future business dealings from confidentiality. The founder should be able to discuss deal economics with their own advisors, accountants, and future business partners without triggering a breach.
Decouple covenant breaches from for-cause termination triggers. A restrictive covenant violation should have its own defined remedy — not cascade into forfeiture of equity, earnout, and deferred consideration.
Negotiate the stack as a whole, not covenant by covenant. Review all four restrictions together and map their interactions — the danger is in the connections, not the individual clauses.
Read before you sign.