An ecosystem innovation fund, or “EIF,” is a seed fund for startups. EIFs are a hybrid of corporate venture capital and the US government’s Small Business Innovation Research grant program, or “SBIR.” EIFs combine the best from both models to create a new vehicle for large companies to invest in innovation in their digital ecosystems.Continue reading
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
Yes, but founders should not trust them. A team of attorneys reviewed six popular term sheets in the infographic below. The attorneys revealed many investor agreements are not founder-friendly. Your first step should be to retain a laywer who represents entrepreneurs.
Ask your attorney about a startup investment contract template called Founder Friendly Standard. Founder Friendly Standard 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:Continue reading
Founder Friendly Standard v1.0 has been updated today. The new version of the standard is 1.1. Here is a description of the change:
- Section 2.4 – clarifying language (in bold) has been added for companies outside of the United States. The section now reads: Due to potentially devastating tax consequences, the company tells individuals receiving sweat equity in the United States to consult with a tax professional about making an election under Section 83(b) of the Internal Revenue Code. Founders who live or pay taxes outside the United States are similarly advised to consult tax professionals about applicable local and national taxes.
If you’re curious about how the Founder Friendly Standard came to be, check out the story of our terrible startup experiences in “I’ll be the Sean Parker to your Mark Zuckerberg.”
A new standard for optionality to beat the odds
Grays Sports Almanac for Venture Capital proposes a new risk management strategy for venture capital. In this book, I outline why a venture fund might beat the odds by purchasing 2,208 to 4,416 warrants on startups. Startups would operate under a governance framework called the Founder Friendly Standard, which gives entrepreneurs control of their companies. In exchange, the venture fund would have the option to exercise warrants for 15 years—purchasing discounted equity only in the startups that become successful.
In 2017, Forbes published an article called, “Group of White Men in Patagonia Vests Confused for VC Fund, Raise $500 Million.” It took a while for me to realize the article was satire. A year later, researchers from Harvard, IESE, and Yale unintentionally corroborated the Forbes story with the finding that luck and past success are the winning factors for startup investors—not skill (Nanda et al., 2018). Luck and past success can cause venture capitalists to become overconfident and tinker with their portfolio companies. This can be a problem for entrepreneurs and for limited partners (often pension funds and family offices) who trust venture capitalists to invest wisely.Continue reading
How the startup struggles of three entrepreneurs inspired Founder Friendly Standard
What follows is the story of the startup struggles that inspired Dan, Adam, and me to write Founder Friendly Standard in 2017 to help other entrepreneurs avoid our mistakes. The story is called, “I’ll be the Sean Parker to your Mark Zuckerberg.” It was originally written as a speech about entrepreneurship I delivered one time at Southern Methodist University (SMU) on March 2, 2018.
“That can’t happen to me,” I thought.
Years later, when I was getting forced out of a successful company that I started, I realized Gk was right.Continue reading