A VC - Latest Comments in The Ideal First Round Term Sheet

Re: The Ideal First Round Term Sheet

paramendra — Thu, 03 Sep 2009 15:53:16 -0000

Very good sign indeed. So where is that standard sheet? Is it posted online somewhere?

Re: The Ideal First Round Term Sheet

michaelmurray — Wed, 26 Aug 2009 12:08:49 -0000

Late to the table here, but have to say this is the best stream I have read in a very long time. IMHO, there is a significant pent up demand that is going to break through over the next 6 months. Thinking like this is an accelerator. The faster everyone can be on the same field, the faster all can get to the business of doing the business they all want to be doing -- creating great solutions that, as a bi-product, create wealth for those willing to work hard.

Re: The Ideal First Round Term Sheet

kip mcclanahan — Mon, 24 Aug 2009 08:50:34 -0000

Example investor pitch deck: I recently created a 11-slide EXAMPLE investor pitch deck here: http://bit.ly/ScOYK this deck includes both example slides and descriptions / discussion for each; the powerpoint deck template is also available for download

Re: The Ideal First Round Term Sheet

Dave — Sun, 23 Aug 2009 00:50:36 -0000

Your comment re ISDA master cracks me up. I've thought for years that the most complex transactions, all shapes and sizes of deriviatives, in the world run off an ISDA master because lawyers don't understand them. Lawyer's, and I'm one, make VC financings much harder than they should be.

Re: The Ideal First Round Term Sheet

Tom Vander Ark — Sat, 22 Aug 2009 08:53:09 -0000

We use Gunderson and their standard terms for all transactions.

Re: The Ideal First Round Term Sheet

fredwilson — Fri, 21 Aug 2009 15:18:51 -0000

Great point on the value of standard docs for secondary markets. I had not focused on that in the past. Now its on my mind

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 23:10:30 -0000

Its not likely that the vc would control the board if the founder owns more than 50pcnt of the company

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 22:56:30 -0000

Its not likely that the vc would control the board if the founder owns more than 50pcnt of the company

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 22:20:50 -0000

Its not likely that the vc would control the board if the founder owns more than 50pcnt of the company

Re: The Ideal First Round Term Sheet

parkparadigm — Thu, 20 Aug 2009 19:35:45 -0000

I'm the investor on the other side of a seed deal where Chris/Orrick are doing docs for the Company and I can vouch that they are some of the best I've seen: clean, concise, simple yet complete.

As an aside (as an old capital markets person) what struck me as dead obvious a couple years ago when I started focusing professionally on the start-up space was the need for a standard base document like an ISDA Master Agreement, then you just do the equivalent of a pricing supplement for the details and idiosyncrasies specific to the deal. If you had this it would also allow the creation of a proper secondary market...

I've got it all mapped out in my head but on the back burner while we raise capital. ;)

Re: The Ideal First Round Term Sheet

David Semeria — Thu, 20 Aug 2009 14:23:40 -0000

Yes, but ....

Nah, another time - it is your birthday after all....

Re: The Ideal First Round Term Sheet

Doug Kersten — Thu, 20 Aug 2009 09:55:31 -0000

I am very selective what I add to Google Reader but Chris Dixon looks excellent! Thanks Fred for pointing him out.

Re: The Ideal First Round Term Sheet

Steve Kane — Thu, 20 Aug 2009 07:45:38 -0000

amen.

Re: The Ideal First Round Term Sheet

Steve Kane — Thu, 20 Aug 2009 07:44:16 -0000

got it.

but, what do you think about the idea of VCs paying their own legal bills?

Re: The Ideal First Round Term Sheet

Steve Kane — Thu, 20 Aug 2009 07:42:24 -0000

with respect, what you wrote in your post is "Chris laid out the ideal set of first round terms and I agree with them."

chris wrote "Founder salaries ...should be “subsistence” level and no more. If the founders are wealthy, the number should be zero. If they aren’t, it should be whatever lets them not worry about money but not save any. This is very, very important. Peter Thiel said it best here. (I would actually go further and say this should be true of all employees at all non-profitable startups - but that is a longer topic)."

so chris clearly advocates all employees be at "subsistence" level. and if you click and listen to thiel's remarks, he also advocates setting founders comp extremely low for, amongst other reasons, the purpose of setting a very low bar for all employees comp (no one gets to earn more than the founders and ceo)

i'm not against Vcs and VC staff making high comp. but i am against startup people -- even founders -- being asked to take below market comp, *especially* when the investors proposing this condition themselves do nothing of the sort

how much excess cash is generated per annum? divided by how many people? sorry, i don't mean to pry, but the investors of the world are setting the example by airing out founders comp in detail and in public so i assume its fair game to do the same with investors?

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 07:16:44 -0000

If that's the case, then they should have preferred too. Preferred is for cash invested and common is for sweat equity

Re: The Ideal First Round Term Sheet

David Semeria — Thu, 20 Aug 2009 07:10:55 -0000

Yes, but what if the $8m pre was made-up entirely of founders' cash?

That never happens, you say. But often founders do confer more than just an idea. I see it all in terms of 'tangibility', and inflicted my logic on Mark Suster here

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 06:22:37 -0000

in the deal i referenced in this post, there are no VC legal fees because we aren't using a lawyer.

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 06:21:35 -0000

i didn't say employees. i said founders. employees need to be paid market, but they can and should consider trading cash comp for equity comp as long as the total is still market. founders own the vast majority of the company at the start and in that period, it is appropriate for them to behave as owners.

we don't take any salaries but we do draw on any excess cash that is in our firm at year end. i would prefer to work for no cash comp and take all of my comp in carry, but i would want a better carry deal than the one i have to do that

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 06:18:55 -0000

i used to think that matt, but i've changed my mind. we do use participating preferred when the valuation is too high for us to be comfortable about an exit in the short term. but we make it go away at 3x.

but we would rather get the valuation right and do a straight preferred.

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 06:15:10 -0000

This is seriously good advice mark. You should blog it. I am going to reblog this at fredwilson.vc

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 04:12:23 -0000

"Tex" is in the house! Big grin on my face

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 04:12:11 -0000

No. We can recommend some of the best and you can choose

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 04:12:08 -0000

I agree with chris on this. The only caveat is if there is 'hair on the deal" lawyers can get killed with fixed price engagements

Re: The Ideal First Round Term Sheet

fredwilson — Thu, 20 Aug 2009 04:12:05 -0000

I may post about it. But think about this. I invest 2mm for 20pcnt of a startup and get common. Founders sell it for 5mm the next day, take out 4mm and I get 1mm. I just lost 1mm while the founders made 4mm

That's what preferred stock fixes and its the reason it exists