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.
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:
Y Combinator Safes
500 Startups KISS notes
NVCA Model Legal Docs
Gust Series Seed term sheet
Sam Altman ‘Founder-Friendly’ term sheet
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.