Calling all bootstrappers for #DisruptSF campaign

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

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.

We want to share this message with the #DisruptSF audience – especially entrepreneurs following on Twitter who aren’t at the event.

On October 2, 2019 – coinciding with the first day of Tech Crunch Disrupt – nearly 30 bootstrappers and I will tweet about the value of customer-funding on the conference hashtag, #DisruptSF.

To join our campaign, look for my Twitter thread on October 2, 2019. My handle is @eisaiah_e.


Founder-Friendly Term Sheet Twitter Teardown

Our #DisruptSF campaign has generated 1.823M twitter impressions so far according to Keyhole, a social media monitoring tool. Here are the threads from the Founder Friendly Standard comparison research:

🔥 MYTH: You need to angel investment or venture capital to start a real venture – or else it’s just a “lifestyle” business.


#DisruptSF #FounderFriendlyStandard

1/ Venture capital in Silicon Valley dates back to 1957. The first VC investment was in Fairchild Semiconductor. Back then, starting a company required lots of capital. Now, not so much as @estraschnov points out.

2/ When founders delay investment venture capital, they get more control of their companies. @founding

3/ When entrepreneurs raise capital too early, they get less control their companies. @daviswbaer

4/ What’s the point of raising capital early? To make more money? @TwoBitJustin points out that bootstrapped companies are more likely to make money.

5/ Bootstrapping promotes smart growth rather than growth at all costs. @skmurphy

6/ Bootstrapping promotes long term thinking. @NicolasVDB

7/ Even in the short run, bootstrapping has its rewards. @salred3

8/ You can build a wildly successful business like @basecamp @doist without raising capital. @MikeBoyd

9/ Or you can bootstrap just long enough to get the investment terms you want. @R44D #DisruptSF #FounderFriendlyStandard

10/ Bootstrapping gives you the option to say “No” to bad investors. @JonahLupton #DisruptSF #FounderFriendlyStandard

11/ Here are terms bootstrapped founders can reject. Six attorneys compared @500Startups KISS @ycombinator Safe and Series A @nvca docs @gust Series Seed @samaltman term sheet to #FounderFriendlyStandard. See how they compare

12/ Hidden “gotcha” in @nvca @ycombinator @gust @sama term sheets that gives VCs and angel investors the right to veto a sale. It’s exposed in 1.4 of #FounderFriendlyStandard comparison here: @robwalling explains why it’s a problem.

13/ Entrepreneurs who bootstrap can walk away from #VCs who don’t agree to #FounderFriendlyStandard terms. @KateKendall

#DisruptSF #FounderFriendlyStandard

14/ One way to start your company without investors is to provide services and reinvest revenues into building a product. @John_W_Mullins, Author of The Customer Funded Business [Book] #DisruptSF #FounderFriendlyStandard

15/ The idea of customer-funding is not new. @thegyppo #DisruptSF #FounderFriendlyStandard

16/ Customer-funding should be the default answer for startups. @asmartbear #DisruptSF #FounderFriendlyStandard

17/ When you’re growing your startup from revenue, you won’t have a lot of money at first. This is a blessing in disguise. @jasonfried #DisruptSF #FounderFriendlyStandard

18/ You’re not alone when you defer or decline investment. Join @radavics‘s Facebook group to connect with other bootstrapping entrepreneurs: #DisruptSF #FounderFriendlyStandard

19/ The beauty of bootstrapping is customers are the boss, not some guy in a fleece vest. @ryanckulp #DisruptSF #FounderFriendlyStandard

20/ Don’t let startup pop culture fool you. Total $ invested doesn’t define a venture. @lkr #DisruptSF #FounderFriendlyStandard

21/ Generating returns isn’t basic. It requires mastery of the basics. @aaronbailey #DisruptSF #FounderFriendlyStandard

22/ You shouldn’t cut corners when your goal is generating returns over the long run. @webbie #DisruptSF #FounderFriendlyStandard

23/ Generating returns requires carefully re-investing your profits. @pvptowers

24/ Did we say bootstrapping would be easy at first? No. But it’s worth it in the long run. @DoctorLindy #DisruptSF #FounderFriendlyStandard

25/ One more reason to bootstrap: You get to choose your team. @aytekintank #DisruptSF #FounderFriendlyStandard

26/ One more reason not to chase #VC. @mhsutton

27/ If your business was an animal, would it actually roam the earth like a 🦓? If so then you don’t need VC to grow. @sexandstartups @JenniferBrandel @marazepeda @ajscholz @operaqueenie

28/ You just heard from 25 entrepreneurs who verified that raising capital is *not* necessary to start a *real* venture. It is a myth that firms without funding are limited to being “lifestyle” businesses.

What would you add here, #DisruptSF #FounderFriendlyStandard?


Originally tweeted by Jennifer Rohleder (@JRohlederLaw) on October 2, 2019.

🔥 MYTH: Standard term sheets give founders the rights they need to lead their companies.


#DisruptSF #FounderFriendlyStandard

1/ To build for the long term, founders need to consider their company’s management structure. It’s easy to ignore when trying to develop a product, build a team, and raise money, but ignoring governance can come back to haunt you.

2/ It’s easy for founders to be seduced by unicorn dreams and focus on valuations, but it’s critical to stay conscious of shareholder voting rights and what the board of directors will look like and the control the board will have over the #startup.

3/ When the fundraising afterglow fades, and a company hits bumps in the road, founders are going to want alignment with their investors on strategic direction and how to make tough decisions.

4/ The standard #VC #angelinvestor documents and a lot of term sheets out there can sidestep these issues, and founders might ignore them or assume they’re not important – but the issues are critical to enabling founders to execute on their visions.

5/ @kadambloom, @KeithStrahan, @JRohlederLaw, @rlj_law, and I analyzed the top documents for #startup funding. You can see how they compare to #FounderFriendlyStandard:

6/ A founder should remember that his or her passion, company, and entire financial future may be more like a lottery ticket to a VC. There can be situations where incentives aren’t fully aligned.

Standard term sheets often give investors the power.

7/ Experienced founders, what words of caution would you share with the #DisruptSF audience and beyond about working with angel investors and VCs?

Reply to this tweet and/or RT with a comment.

Passing the mic 🎤

Originally tweeted by Zev Safran (@zns2101) on October 3, 2019.

🔥 Some words of caution for founders thinking about using @ycombinator Safes


#DisruptSF #FounderFriendlyStandard

1/ If you want to run your company for a long time, you’ll need control. You’re unlikely to lose control if you can maintain ownership of 80 – 95% of your company. If you’re down to 40 – 55% of your company after your first round of financing, control can slip away fast.

2/ Raising too much on a Safe, especially with a high discount or a low valuation cap, is a quick way to give away too much equity.

3/ Safe terms can obscure the math over how much of your company you’re giving away, because you’re not giving away a fixed percentage of your company. How much equity you’re giving away won’t be determined until your next round of financing.

4/ Sometimes along with Safes, investors ask for pro rata rights, which give investors a right to invest in the company’s next rounds of financing.

5/ You might say, “What’s wrong with giving investors more of just an opportunity to invest at that same rate as new investors?”

6/ The problem: Some investors might not be adding value anymore, and you don’t want them squeezing out new investors who are adding not only new dollars but also potential connections and guidance.

7/ The terms of a Safe not only impact you today, but they can impact your next round of financing. Signing a Safe is something that should be done with a lot of care and consultation of a lawyer.

8/ You can view my comparison of the @ycombinator Safe to the #FounderFriendlyStandard here.

9/ In the final analysis, Safes are wonderful instruments for efficiently closing startup investments on fair terms. Their simplicity and standardization can, however, lead founders to rush into them with adequate reflection or guidance.

10/ Experienced founders, what words of caution would you share with the #DisruptSF audience and beyond about accepting investment (especially with Safes)?

Reply to this tweet and/or RT with a comment.


Originally tweeted by Ryan Juliano ⬆️🥧 (@rlj_law) on October 3, 2019.

🔥 FALSE: Venture capital industry @nvca legal docs are founder-friendly.


#TCDisrupt #FounderFriendlyStandard #DisruptSF

1/ If you’re an early stage founder, you’ll want to make sure your entity is formed correctly and has the right legal protections so investors can’t completely take control.

2/ If your investors are proposing the @nvca model legal documents, be wary. ⚠️ There are many default sections that do not meet the #FounderFriendlyStandard.

3/ @nvca docs don’t meet section 1.1 of #FounderFriendlyStandard which is meant to give founders super-voting equity.

4/ @nvca docs don’t meet section 1.2 of #FounderFriendlyStandard which is meant to limit investor control of your startup.

5/ @nvca docs don’t meet section 1.5 of #FounderFriendlyStandard which says investors don’t get anti-dilution.

6/ @nvca docs don’t meet section 3.1 of #FounderFriendlyStandard which is meant to make investors pay their own legal fees.

7/ There are 15 sections of #FounderFriendlyStandard that we compared to @nvca docs. Analysis here.

8/ If you can muster the patience to build what @John_W_Mullins calls a customer-funded business, you can reject the provisions of the @nvca model legal documents that don’t meet #FounderFriendlyStandard.

9/ Experienced founders, is it worth bootstrapping until you can get funding on your own terms or is it better to get #VC early – even if it means giving up control?

Reply to this tweet and/or RT with a comment.


Originally tweeted by Keith Strahan (@KeithStrahan) on October 3, 2019.

🔥 One legal mistake startup founders can’t afford to make.


#DisruptSF #FounderFriendlyStandard

1/ When founders first come to me to help them structure their business, they tend to be worried about maintaining control. But when they go raise capital later on, that concern seems to disappear. #TCDisrupt

2/ Hello cognitive dissonance. #TCDisrupt

3/ So I dug deeper. And what I realized is that founders still care about keeping control of their company, they simply don’t recognize all the terms that could jeopardize their control. Once you get past the company valuation and the amount of investment, most founders tune out.

4/ I try not to get too cynical and assume that most investors have nefarious intent. I am personally acquainted with a number of investors, and I know that isn’t true. Most early stage investors genuinely want to help and mentor the founders they invest in.

5/ Where the investors can fall down is that they may be relying on so-called “standard industry documents.” And these documents are anything but founder friendly.

6/ So in an effort to raise awareness about the consequences of signing a standard term sheet, I joined the team behind the #FounderFriendlyStandard.

7/ #FounderFriendlyStandard, pioneered by @eisaiah_e @dflanegan @kadambloom, is a framework for analyzing your potential deal. It can help entrepreneurs avoid problems that cause startup relationships to implode.

8/ I compared #FounderFriendlyStandard to 2 common term sheet templates: the @sama term sheet, and the @gustly Series Seed term sheet. Neither is particularly founder-friendly (shocker!), but Sam Altman’s is considerably better than Gust’s.

9/ You can review my analysis of the Sam Altman term sheet and my analysis of the Gust Series Seed term sheet here:

10/ I believe that the best way to build a business is to bootstrap it as long as you can manage. The more developed and knowledgeable you are, the greater the leverage you have in funding negotiations, and the better terms you can demand. @John_W_Mullins

11/ The most important thing will be that you fully understand and appreciate the consequences of each provision in the term sheet, before you sign it.

Not doing this is one legal mistake that startup founders can’t afford to make.

12/ Experienced founders, what words of caution would you share with the #DisruptSF audience and beyond about working with angel investors and VCs?

Reply to this tweet and/or RT with a comment.


Originally tweeted by Jennifer Rohleder (@JRohlederLaw) on October 3, 2019.

We were joined by a 85 other unique users posting a total of 245 tweets, mostly happening between Oct 1 and 4. Here is a snapshot of the results from Keyhole:

Results from our founder-friendly term sheet twitter teardown.
Graph shows #FounderFriendlyStandard metrics for our campaign during #TCDsirupt – Twitter only.

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