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 mistakes when negotiating venture financing.

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“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.
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