Network effects don't just exist in tech. Delaware has the most developed corporate law and support services for corporate transactions (you can file charters, mergers, etc. within an hour there; good luck doing that in…
Yes, this.
The term sheet we posted is just meant to show what a pretty good term sheet looks like from a good investor. The investor having its legal fees reimbursed by the company is something that shows up all the time. Sure,…
Re-vesting schedules are all over the map. Some amount of re-vesting is often required at Series A, but it largely has to do with how vested the founders already are. If for example they've been working on the company…
Theoretically this would appear to be true. In practice, the firms that give 1-pagers don't really try to pull a bait and switch like that. They offer the 1-pager so they can close quickly, not so they can get quickly…
Major investors concept (investor has to have invested at least $X) is often added in the definitives. Longer term sheets just state a threshold dollar amount; shorter ones (like this one) just skip that definition and…
It can be legally binding.
You can make arguments like this in negotiations and sometimes they can work. It just depends. As I mentioned elsewhere, this was meant to be more descriptive than prescriptive. Founder vesting/re-vesting is often a…
Existing employee vesting is generally left alone unless they have something crazy.
I think it just comes down to risk preferences. If you optimize for a higher valuation and give the investor downside protection for that, then you own more of the business and therefore more of the upside. If you…
probably true
Annual and quarterly unaudited is normally implied. Sometimes monthly too. Most good Series A investors understand that audited financials don't make sense this early and their lawyers will draft something like the…
I'm going to answer this question a little differently, because enforceability can also depend on facts and circumstances. Think of the binding / non-binding distinction as more of a social commitment signal. The No…
We send people that link all the time to help them understand option pools. The main point of that post is to make it clear to founders that when an investor is saying they'll invest $X to get 20%, the dilution is more…
I wouldn't talk in absolutes because having a ton of negotiating leverage can make everything fair game. But in an run of the mill deal, it's pretty tough to make a VC give up anything that's not in brackets.
descriptive, but note the comment about the brackets.
I think you already answered that question in your post. There would be incrementally more proceeds for the founders and employees in an exit that is flat or below the postmoney valuation of the Series A round. But as…
Yeah excessive preferences do exactly this. But it's not the preference mechanism as much as what the preference does in relation to business value. Assuming liquidation preferences are 1x, what it means is that the…
Good question. The anti-dilution right is an adjustment to the investor's shares that occurs when the company does a down-round. The "broad-based" qualifier is a reference to the most company-friendly version of this…
Some minor wordsmithing that reflects lawyer and investor /founder preferences happens a fair amount. The veto on company sales breaks founder friendly occasionally (you need a decent amount of leverage). Some examples:…
It’s meant to provide transparency on what good and clean terms are. It won’t generate negotiating leverage for you if you don’t have any, though on the margins it might help you persuade someone that a term is…
The impact on safe investors will be less than in those 2 models because those models assume no pool, ie no hires between Safes and Series A. That’s why I said it was artificial, and that safe investors will do better…
yes, that's what we meant by the percentages.
I answered your first model comparison with point #1. Can't use it here since I don't know what other scenarios you're modeling out. I think points #2 and #3 continue to apply. You can't say that the new framework will…
Sure - just sent to you.
Network effects don't just exist in tech. Delaware has the most developed corporate law and support services for corporate transactions (you can file charters, mergers, etc. within an hour there; good luck doing that in…
Yes, this.
The term sheet we posted is just meant to show what a pretty good term sheet looks like from a good investor. The investor having its legal fees reimbursed by the company is something that shows up all the time. Sure,…
Re-vesting schedules are all over the map. Some amount of re-vesting is often required at Series A, but it largely has to do with how vested the founders already are. If for example they've been working on the company…
Theoretically this would appear to be true. In practice, the firms that give 1-pagers don't really try to pull a bait and switch like that. They offer the 1-pager so they can close quickly, not so they can get quickly…
Major investors concept (investor has to have invested at least $X) is often added in the definitives. Longer term sheets just state a threshold dollar amount; shorter ones (like this one) just skip that definition and…
It can be legally binding.
You can make arguments like this in negotiations and sometimes they can work. It just depends. As I mentioned elsewhere, this was meant to be more descriptive than prescriptive. Founder vesting/re-vesting is often a…
Existing employee vesting is generally left alone unless they have something crazy.
I think it just comes down to risk preferences. If you optimize for a higher valuation and give the investor downside protection for that, then you own more of the business and therefore more of the upside. If you…
probably true
Annual and quarterly unaudited is normally implied. Sometimes monthly too. Most good Series A investors understand that audited financials don't make sense this early and their lawyers will draft something like the…
I'm going to answer this question a little differently, because enforceability can also depend on facts and circumstances. Think of the binding / non-binding distinction as more of a social commitment signal. The No…
We send people that link all the time to help them understand option pools. The main point of that post is to make it clear to founders that when an investor is saying they'll invest $X to get 20%, the dilution is more…
I wouldn't talk in absolutes because having a ton of negotiating leverage can make everything fair game. But in an run of the mill deal, it's pretty tough to make a VC give up anything that's not in brackets.
descriptive, but note the comment about the brackets.
I think you already answered that question in your post. There would be incrementally more proceeds for the founders and employees in an exit that is flat or below the postmoney valuation of the Series A round. But as…
Yeah excessive preferences do exactly this. But it's not the preference mechanism as much as what the preference does in relation to business value. Assuming liquidation preferences are 1x, what it means is that the…
Good question. The anti-dilution right is an adjustment to the investor's shares that occurs when the company does a down-round. The "broad-based" qualifier is a reference to the most company-friendly version of this…
Some minor wordsmithing that reflects lawyer and investor /founder preferences happens a fair amount. The veto on company sales breaks founder friendly occasionally (you need a decent amount of leverage). Some examples:…
It’s meant to provide transparency on what good and clean terms are. It won’t generate negotiating leverage for you if you don’t have any, though on the margins it might help you persuade someone that a term is…
The impact on safe investors will be less than in those 2 models because those models assume no pool, ie no hires between Safes and Series A. That’s why I said it was artificial, and that safe investors will do better…
yes, that's what we meant by the percentages.
I answered your first model comparison with point #1. Can't use it here since I don't know what other scenarios you're modeling out. I think points #2 and #3 continue to apply. You can't say that the new framework will…
Sure - just sent to you.