To help entrepreneurs identify a founder-friendly term sheet, six attorneys compared KISS, Safe, NVCA, Gust, and other startup investment agreements to Founder Friendly Standard. The research took place in Q3 2019.
A startup that bootstraps and increases market power consistently has the best odds of getting a founder-friendly term sheet. You don’t need VC or angel investors to start your business.
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This weekend, I’ve been reaching out to startup influencers to coordinate a twitter campaign where we celebrate Indie Hackers, bootstrappers, customer-funding, and Zebras during the unicorn-obsessed Tech Crunch Disrupt conference in San Francisco, October 2 – 4, 2019. If you want to join us, we’re using the hashtag #DisruptVC.
One of the influencers I approached asked why Founder Friendly Standard gives founders a 24:1 voting advantage. The reason is to keep founders in control of their companies. Here’s an excerpt from the email:
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Yes. There are lots of templates available, and you should start by retaining an attorney who represents founders. Your attorney may have a set of templates that you can have adapted to the Founder Friendly Standard.
After learning hard lessons about the tension between investors and founders, I teamed up with my former business partner, Dan Flanegan, and my former attorney, K. Adam Bloom, to create an open-source standard that you can attach to any bylaw agreement, term sheet, employment agreement, etc.
It’s called the Founder Friendly Standard. It has 17 sections that can lay common disputes to rest such as who gets to vote, who gets liquidation preferences, what is the scope of non-compete, etc.
Here are (3) three of the juiciest sections:
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#StartupGrind 2019 was a coming out party for many of the ideas behind my investment hypothesis, Grays Sports Almanac for Venture Capital.
Here are the top 17 tweets that illustrate points made in the book:
A High-Growth Company is defined as achieving $2M+ in revenue with 20% annualized growth over a 3-year period. This definition comes from page 10 of the 2017 Kauffman Index of Growth Entrepreneurship.
The data table below shows the odds of starting a High-Growth Company in each major city in America. This data serves as a baseline for the fund I’m modeling based on the book, Grays Sports Almanac for Venture Capital. I am sharing my research notes here so that you can incorporate this data into your angel investing or venture capital models.
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The above graph shows the top 20 reasons why startups fail from CB Insights. I marked up the graph with green checkboxes to show which risk factors customer-funding (also called bootstrapping) can help you manage. Orange checkboxes denote risk factors that Founder Friendly Standard can help manage.
Risk Factor: No market need
If you’re bootstrapping, you’ll find out pretty quickly if there is no market need. Unlike your angel and VC-funded cohorts, you’ll be able to make fast pivots while they’re lining up their organizations’ change management strategies.
Risk Factor: Ran out of cash
If you are bootstrapping, you are financing innovation with organic cash flows. This is a key growth driver in the Credit Suisse Family 1000 research. If your company is controlled by its founders, you’re more likely to pace yourself, spending the money like it’s your own vs. your VC-funded competitors who are quick to spend (principal–agent theory).
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Kindle Book: Grays Sports Almanac for Venture Capital (2018)
Audio Book: Grays Sports Almanac for Venture Capital (2018)
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According to my personal coach, Joe Cohen, personal values are a powerful tool for evaluating what’s important.
Here is a list of eight of my personal values. Since what we value influences our behavior, think of this as a “user guide” to Eisaiah.
Which of these values do we share? I want to hear from you on Twitter! Tag me @eisaiah_e.
Invest long-term. To me, this means committing to productivity growth.
Founder Friendly Standard v1.0 has been updated today. The new version of the standard is 1.1. Here is a description of the change:
The change has been applied to:
Grays Sports Almanac for Venture Capital proposes a new risk management strategy for venture capital. In this investment hypothesis, I outline why a venture fund might beat the odds by purchasing 2,208 to 4,416 warrants on startups. Startups would operate under a governance framework called the Founder Friendly Standard, which gives entrepreneurs control of their companies. In exchange, the venture fund would have the option to exercise warrants for 15 years—purchasing discounted equity only in the startups that become successful.