Investments

Review of Sam Altman’s Personal Term Sheet

Jennifer Rohleder reviews Sam Altman's personal term sheet for startup investing

How founder-friendly is it?

I managed a study in 2019 with attorneys who reviewed the six most popular startup financing documents—all of which were produced by investor-funded organizations. After pouring through 298 pages of legalese, the attorneys found the top six financing documents were, on average, only 38% compatible with Founder Friendly Standard. Of the six documents, Sam Altman’s personal term sheet is the most compatible with Founder Friendly Standard. See for yourself by viewing our infographic where you can drill down and compare the term sheets.

Comparison of Sam Altman’s personal term sheet with Founder Friendly Standard

Review written by Jennifer Rohleder, Principal of J. Rohleder Law, on July 25, 2019.

Below, you’ll see how Sam Altman’s Personal Term Sheet compares to Founder Friendly Standard. I wrote this review to help startup founders critically evaluate the issues in term sheet templates.

Continue reading →

Review of Y Combinator Safes

Ryan Juliano attorney review of YC Safe Notes

How founder-friendly are they?

I orchestrated a study in 2019 with attorneys who reviewed the six most popular startup financing documents—all of which were produced by investor-funded organizations. After pouring through 298 pages of legalese, the attorneys found the top six financing documents were, on average, only 38% compatible with Founder Friendly Standard. Y Combinator Safes are silent on a number of important issues. See for yourself by viewing our infographic where you can drill down and compare the term sheets.

Many founders don’t realize how much of a company they’re giving away with YC Safes

Review written by Ryan Juliano, Vice President, Head of Platform, and Attorney at Howell Legal on June 6, 2019.

The below review of the Y Combinator (YC) Safes compares them to the Founder Friendly Standard. Y Combinator publishes four variants of post-money Safes:

  1. Valuation Cap, no Discount
  2. Discount, no Valuation Cap
  3. Valuation Cap and Discount
  4. MFN, no Valuation Cap, no Discount

When I refer to YC Safes, I’m talking about all four variants. The only difference between the Safes in this comparison occurs in Section 1.5 below on the topic of anti-dilution.

Continue reading →

Review of 500 Startups KISS Notes

Zev Safran: Comparison of 500 Startups KISS Notes to Founder Friendly Standard

How founder-friendly are they?

I organized a study in 2019 with attorneys who reviewed the six most popular startup financing documents—all of which were produced by investor-funded organizations. After pouring through 298 pages of legalese, the attorneys found the top six financing documents were, on average, only 38% compatible with Founder Friendly Standard. 500 Startups KISS Notes are silent on a number of important issues. See for yourself by viewing our infographic where you can drill down and compare the term sheets.

Review written by Zev Safran of Safran Law on June 25, 2019.

500 Startups KISS Notes are investment templates meant to enable early stage startups to raise money without a lengthy negotiation of legal terms. I reviewed both variants of 500 Startups KISS Notes to write this comparison to Founder Friendly Standard.

When I refer to 500 Startups KISS Notes, I’m talking about both variants.

Continue reading →

Review of Y Combinator Series A Term Sheet Template

Six attorneys compare popular investment agreements side-by-side to Founder Friendly Standard

How founder-friendly is it?

I conducted a study in 2019 with attorneys who reviewed the six most popular startup financing documents—all of which were produced by investor-funded organizations. After pouring through 298 pages of legalese, the attorneys found the top six financing documents were, on average, only 38% compatible with Founder Friendly Standard. The Y Combinator (“YC”) Series A Term Sheet Template was not the most founder-friendly nor was it the least. See for yourself by viewing our infographic where you can drill down and compare the term sheets.

Y Combinator Term Sheet - Comparison to Founder Friendly Standard.
Click each box in the interactive version for analysis.

Founders who want to be their own bosses shouldn’t use the YC Series A Term Sheet Template

Review written by K. Adam Bloom, Startup and Entertainment Attorney, on September 7, 2019.

To write this comparison, I used the Founder Friendly Standard to grade the Y Combinator Series A Term Sheet Template.

Continue reading →

Review of NVCA Model Legal Documents

Keith Strahan - Attorney comparison of NVCA Model Legal Docs to Founder Friendly Standard

How founder-friendly are they?

I led a study in 2019 where attorneys reviewed the six most popular startup financing documents—all of which were produced by investor-funded organizations. After pouring through 298 pages of legalese, the attorneys found the top six financing documents were, on average, only 38% compatible with Founder Friendly Standard. The NVCA Model Legal Documents were the least compatible with the Founder Friendly Standard. See for yourself by viewing our infographic where you can drill down and compare the term sheets.

Review written by Keith Strahan, Managing Partner at Fulton Strahan Law Group, on Oct 14, 2019.

NVCA Model Legal Documents can be very time-consuming and expensive to negotiate and document. They include 18 agreements. To write this answer, my associate, Josh Mathews, and I reviewed the following six documents:

  1. NVCA Voting Agreement
  2. NVCA Term Sheet
  3. NVCA Stock Purchase Agreement
  4. NVCA Right of First Refusal and Co-Sale Agreement
  5. NVCA Investor Rights Agreement
  6. NVCA Certificate of Incorporation

To write this review, we started with each issue in the Founder Friendly Standard and compared it to the NVCA Model Legal Docs.

Continue reading →

Review of Gust Series Seed Term Sheet

Jennifer Rohleder's review of Gust Series Seed Term Sheet

How founder-friendly is it?

I led a study in 2019 with attorneys who reviewed the six most popular startup financing documents—all of which were produced by investor-funded organizations. After pouring through 298 pages of legalese, the attorneys found the top six financing documents were, on average, only 38% compatible with Founder Friendly Standard. The Gust Series Seed Term Sheet was one of the least compatible with the Founder Friendly Standard. See for yourself by viewing our infographic where you can drill down and compare the term sheets.

Gust Series Seed Term Sheet does not guarantee founders any control of their companies

Review written by Jennifer Rohleder, Principal of J. Rohleder Law, on July 25, 2019.

If you can muster the patience to build what John W Mullins calls a customer-funded business, you can reject the terms of the Gust Series Seed Term Sheet that you don’t like. (Always consult with an attorney when negotiating a term sheet.)

Continue reading →

Attorney Roundtable: How founder-friendly are “standard” VC term sheets?

Jennifer Rohleder, Keith Strahan, Zev Safran, and Ryan Juliano

Venture capitalists and angel investors can say they are founder-friendly. But their “standard” term sheets and funding agreements may tell a different story.

Four attorneys with deep expertise in startup fundraising weighed in during a roundtable discussion with me, Eisaiah Engel, co-author of Founder Friendly Standard, a checklist for entrepreneurs to address all the “other” terms in a financing besides valuation and percentage of the company purchased. The attorneys shared their insights on what makes a term sheet founder-friendly, how “standard” term sheets compare to each other, and how to avoid my past mistakes when negotiating venture financing.

INFOGRAPHIC: The attorneys in this roundtable discussion contributed to this infographic comparison of the six most popular startup financing templates (Y Combinator Safes and Series A, NVCA Model Legal Docs, Gust Series Seed, Sam Altman’s personal term sheet, and the 500 Startups KISS).

Continue reading →

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

Side-by-side comparison of "standard" term sheets to Founder Friendly Standard

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

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

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.
Continue reading →

Calling all bootstrappers for #DisruptSF campaign

Results from our founder-friendly term sheet twitter teardown.
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.

Continue reading →

Why startup founders should have super-voting equity

Super-voting equity for founders in Section 1.1 of Founder Friendly Standard

Founder Friendly Standard gives founders 24:1 super-voting shares of stock. The purpose is to keep founders in control of their startups so they can build for the long term.

Here are data that support giving startup founders super-voting shares and thus control of their companies:

  1. Google has 10:1 super-voting equity for its founders. Snapchat doesn’t give shareholders any voting rights. Investors buy stock in these companies every day. 
  2. The Credit Suisse Family 1000 research found that companies controlled by their founders build for the long-term, which translates to a competitive advantage over time.
  3. Principal-agent theory suggests that agents (investors) may be more short-term focused than principals (founders).
  4. Prospect theory suggests that diversified investors would engage in riskier behavior to seek outsized gains. Founders, whose net worth is not diversified, would often prefer the opposite.
Continue reading →