The Ideal First Round Term Sheet
Chris laid out the ideal set of first round terms and I agree with them. What's interesting is that Chris is a serial entrepreneur and I am a VC. And yet we agree on what the term sheet should say. That's progress.
In fact, Chris' favorite law firm, Gunderson, has put together a term sheet and a set of documents that we've been using lately to do a "quick closing". We were inspired by a number of people, most notably Paul Graham and Y Combinator who do this as well.
We are in the process of closing our first investment with the Gunderson docs. We (the VCs) don't have a law firm on this investment and we are not negotiating the documents. We agreed on the term sheet and we are closing on a set of documents we've signed off on prior to issuing the term sheet. They are "boilerplate documents."
There are multiple benefits to doing it this way. First, it leads to a very fast close. Second, the legal costs are minimal, certainly less than $10k and they should be less than $5k. And third, it sets the company up well for future rounds of financing because there is nothing funky in the docs.
It certainly doesn't hurt that the company's counsel, Gunderson, is a firm that we have used on multiple transactions as well. We trust them and so does the company.
I'd like to see this practice become standard in our industry. We need to lower the time and cost of raising capital. We need to eliminate a lot of bad terms that have caused a lot of harm (tranched investments, mutiple liquidation preferences, super pro-ratas, etc, etc). We need to converge on a set of standard Series A terms that everyone uses.
I'm really pleased to see that entrepreneurs, VCs, and the lawyers are all coming together on this issue. That's a very good sign