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).
The data table below shows the odds of starting a High-Growth Company in each major city in America. This data serves as a baseline for the ecosystem innovation fund model that I introduced in Innovation Casino. I am sharing my research notes here so that you can incorporate this data into your angel investing or venture capital models.
Founder Friendly Standard and customer-funding can help founders avoid “No market need, Running out of cash, Not the right team,” and 7 more reasons startups fail.
The above graph shows the top 20 reasons why startups fail from CB Insights. I marked up the graph with green checkboxes to show which risk factors customer-funding (also called bootstrapping) can help you manage. Orange checkboxes denote risk factors that Founder Friendly Standard can help manage.
Risk Factor: No market need
If you’re bootstrapping, you’ll find out pretty quickly if there is no market need. Unlike your angel and VC-funded cohorts, you’ll be able to make fast pivots while they’re lining up their organizations’ change management strategies.
Risk Factor: Ran out of cash
If you are bootstrapping, you are financing innovation with organic cash flows. This is a key growth driver in the Credit Suisse Family 1000 research. If your company is controlled by its founders, you’re more likely to pace yourself, spending the money like it’s your own vs. your VC-funded competitors who are quick to spend (principal–agent theory).