“Standard” term sheets are only 38% founder-friendly

Y Combinator Safe, 500 Startups KISS, and other “standard” term sheets cannot claim they are founder-friendly, reveals study by 6 startup attorneys.

Nearly every hour of my spare time since May 2019 has gone into this research study to determine if “standard” term sheets really are founder-friendly. It feels amazing to be finished! Here is what we found.

Six attorneys analyzed 298 pages of legalese from:

  1. Y Combinator Safes
  2. 500 Startups KISS notes
  3. NVCA Model Legal Docs
  4. Gust Series Seed term sheet
  5. Sam Altman ‘Founder-Friendly’ term sheet
  6. Y Combinator Series A term sheet

Compared to Founder Friendly Standard®, a framework for determining if a venture capital or angel investment deal is founder-friendly, the above “standard” term sheets and contract templates were on average:

  • A little more than a third (38%) founder-friendly as defined by being compatible with Founder Friendly Standard.
  • Just under a third (32%) founder-unfriendly as defined by being incompatible with Founder Friendly Standard.
  • Nearly a third (30%) silent on the issues in Founder Friendly Standard.

The six attorneys who took part in the research were:

  • Jennifer Rohleder, Principal, J. Rohleder Law (Washington, DC)
  • Zev Safran, CFA and Attorney, Safran Law PLLC (New York)
  • Ryan Juliano, Vice President, Head of Platform, and Attorney at Howell Legal Inc (Providence)
  • K. Adam Bloom, Startup and Entertainment Attorney (Los Angeles)
  • Keith Strahan, Managing Partner at Fulton Strahan Law Group PLLC (Houston)
  • Josh Mathews, Attorney at Fulton Strahan Law Group, PLLC (Houston)

You can drill down into each attorney’s analysis on this interactive infographic.

Campaign Performance

This research study is the centerpiece of a thought leadership campaign which began July 1, 2019 and is running through November 21, 2019. As of October 12, the campaign generated:

  • 5.192 million impressions across Quora and Twitter
  • 704 upvotes and shares on Quora
  • 1,025 likes, comments, and retweets on Twitter
  • 85 unique users tweeting on #FounderFriendlyStandard hashtag during Tech Crunch Disrupt

Download campaign results deck or view below for more information:

Attorney Interviews

Four of the six participating attorneys gave interviews. Podcasters can find attorney interviews in our podcast pre-production sheet, which includes full transcripts and downloadable sound files.  

You can also access the audio by clicking play on each attorney’s interview below.

Zev Safran analyzed the 500 Startups KISS notes.

Jennifer Rohleder analyzed the Gust Series Seed and the Sam Altman ‘Founder-Friendly’ term sheets.

Ryan Juliano analyzed the Y Combinator Safes.

Keith Strahan and Josh Mathews [not pictured] analyzed the NVCA Model Legal Docs.

Conclusion

If you have read my book, Grays Sports Almanac for Venture Capital, you probably know my goal is to help other entrepreneurs go further by avoiding a mistake I made, giving away too much control of my company to investors. The attorneys who took part in this study are passionate about helping entrepreneurs avoid my mistake. If you are an entrepreneur, you’d be wise to hire one of them to walk you through the issues in Founder Friendly Standard.

As Jennifer Rohleder wrote, “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.” When you read and discuss our research with your attorney, you’ll be doing just that.