We have a standard termsheet that we’ve used on our last few deals and plan to publish in the near future once we’ve ironed out some final wrinkles. The thing with standard termsheets is that they go straight to the position where you would normally expect to end up after negotiation. Normal termsheets, by contrast, take a position that is favourable to the investor with the expectation that they will be negotiated down.
In our case we set out to be founder friendly and wrote a termsheet that has the minimal set of investor protections that we can get away with as an institutional investor – we need some protections because we have a duty of care to the people who invest in our fund. We looked at the other standard termsheets that are out there, Series Seed, Series Summit, etc and were either consistent with them or more founder friendly they are. We couldn’t use them as is because they don’t have enough detail on key items, like investor protections and founder vesting.
Since writing that termsheet we have used it on around four deals and shared it with a few more companies we have had discussions with. We have taken their feedback and tweaked the termsheet as appropriate with the result that on all terms bar valuation, option pool and details of founder vesting our termsheet is now, in effect, very close to fully negotiated before we send it to companies.
The purpose of a standard termsheet and the full set of standard legal docs that will follow is to make the investment process much quicker and cheaper. We hope to get the time from termsheet to completion down to a matter of days and save thousands in legal bills. It is frustrating to see time and money wasted on negotiating the same points on deal after deal with the same results.
So there’s a big prize to be had, but it requires that everyone takes a different approach to negotiation – i.e. to focus on the small number of key terms that matter which I mentioned above and not get bogged down in the detail of other terms.
I’ve found myself explaining that to entrepreneurs a lot recently (including today) and so I thought I would write it down here so that next time I can simply send a link to this post.