Are there any standard contract templates for investors and founders to use when funding startups?

Here’s me at Enchanted Rock meditating on a better way to beat the odds at the startup lottery.
Here’s me at Enchanted Rock meditating on a better way to beat the odds at the startup ‘lottery.’

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:

1.1 Individuals who work for the company and are instrumental in its inception (“Founders”) receive a class of equity such as Common Stock which provides no less than twenty-four (24) votes to one (1) vote of stock held by investors or employees.

If you’re the founder, why not control your own company? This can lead to better business performance for investors according to Credit Suisse’s Family 1000 research.

2.1 Founders agree in writing they will give and receive performance reviews at the end of each fiscal quarter for the first four (4) years.

Have you ever seen conflict fester and erupt? Famous examples include Bill Gates & Paul Allen, Evan Spiegel & Bobby Murphy, and Mark Zuckerberg & Eduardo Saverin. This provision facilitates giving and receiving feedback at least every quarter to address conflict before it becomes a risk to your startup.

3.2 For at least the first two (2) years of operations, the company does not agree to binding arbitration with any investor.

It’s a known fact that forced arbitration between parties of unequal bargaining power is unfair. And since arbitration is often more expensive than regular court, wouldn’t it be in the investor’s best interest to go along here to save costs?

The full text of Founder Friendly Standard is available here as text and audio. I encourage you to read it and send it to your attorney as an agenda for your next conversation.

Six attorneys compare popular investment agreements side-by-side to Founder Friendly Standard
Click each box in the interactive version for analysis.

Q: What’s in it for investors?

A: Healthy financial returns. I’ve researched how the Founder Friendly Standard combined with optionality can deliver better returns than today’s angel investing and venture capital methods. The book is called: Grays Sports Almanac for Venture Capital: A new standard for optionality to beat the odds.

This post originally appeared on Quora as an answer here.

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