Should a startup founder agree to a non-compete?

Hell no. Are you kidding me?

Non-competes can advance the interests of investors to the detriment of entrepreneurs. That is why Founder Friendly Standard section 2.5 limits non-competes to the period of a founder’s work for the company, making it possible for a founder to earn a living in his/her industry after he/she leaves.

In 2019, I led a study where attorneys compared popular term sheets to Founder Friendly Standard. The below videos were produced during the study and originally posted on Quora. Other noteworthy outputs from the study include this infographic comparison and this attorney roundtable discussion.

The below video is an analysis of non-compete issues from attorney Zev Safran’s review of the 500 Startups KISS document:

The below video is an analysis of non-compete issues from attorney Keith Strahan’s review of the NVCA Model Legal docs:

The below video is an analysis of non-compete issues from attorney Jennifer Persico Rohleder’s review of Sam Altman’s personal term sheet:

The below video is an analysis of non-compete issues from attorney Jennifer Persico Rohleder’s review of the Gust Series Seed term sheet:

The below video is an analysis of non-compete issues from attorney Ryan Juliano’s review of the Y Combinator Safe:

As you may have gathered from the above videos, you need to retain the right to earn a living in your industry if you leave your startup. Agreeing to a non-compete can take that right away from you. You can still agree to compete fairly and not breach confidentiality and intellectual property rights.

If investors insist on a non-compete that lasts longer than your employment at the company, then you should insist each investor personally guarantee a severance package equivalent to your fair market salary for as long as the non-compete is in place. Restricting your ability to lawfully practice a trade should be as personal for them as it is for you. And it is personal. I am speaking from experience. Yes, I made this mistake. Read about my startup struggles here.

INFOGRAPHIC: For side-by-side attorney comparisons of the 6 most popular startup term sheets to Founder Friendly Standard, visit our interactive infographic here.

For the investment case behind the Founder Friendly Standard, check out my December 2020 book, Innovation Casino: Grow Digital Revenue with an Ecosystem Innovation Fund.

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