Standardized Venture Funding Docs

There was a lot of noise in VC/startup land earlier this week about the Series Seed documents that can be used to close a seed round. Marc Andreessen told PE Hub:

It’s like open source software. If it’s developed by IBM, there’s no
reason for another company not to use it. The documents aren’t owned or
controlled by Fenwick. Fenwick isn’t getting paid for them. I don’t
think there’s a reason for another attorney not to use them, except if
they’re concerned over reduced billings. Lawyers have a financial
incentive to make things more complicated because they are paid more.

I'd like to differ with Marc on this one. First, as Brad Feld points out, there are now four sets of "open source" seed documents:

I will add a fifth of sorts; Gunderson has set up a "Simple Series A" set of forms that our firm has used a few times. I am not aware that they have been published on the Internet yet though.

There are no shortage of "standard forms" out there. TechStars uses one set. Y Combinator uses another. Founders Institute uses a third. Andreessen Horowitz uses a fourth. And USV and other firms uses a fifth.

The problem, as Brad Feld points out, is that nobody has done the work to get all the various players in the room and standardize on one form. Ted Wang showed me the Series Seed documents last year and while I am hugely supportive of his intent here, I can't and won't get behind the Series Seed forms because they leave out some critical stuff that we simply won't do a deal without.

I guess it's like open source software in that there are many flavors of it out there. One project might choose MongoDB for their project. Another might choose Cassandra. A third might choose Hadoop. All will get the job done and all are open source. But each one has its strengths and weaknesses and there is no standard. That's ok with me as long as everyone understands it.

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Comments (Archived):

  1. RichardF

    I’m going to ask the obvious question Fred what are the critical things that are missing or is that a whole new post in itself ?

    1. fredwilson

      there’s some governance stuff missing, some rights missing, and anti-dilution protection is not provided.

      1. joeagliozzo

        I think that the better solution is not standardization of entire documents but of particular clauses. It’s like taking pieces of code and assembling them to create a program.So for instance everyone should use the same anti-dilution clause, or the same preference/liquidation rights, etc., if those clauses are to be part of your document.I think a lot of the cost and time sink in the process comes from negotiating the language of clauses like that (and paying lawyers to read them and make sure they say what you think they say – I am a lawyer and realize that’s an important part of the business, but it’s kind of silly if you think about it – it’s reinventing the wheel).So you should have a “menu” of every “standard” provision and then the only question is which ones you include and if there are percentages or dates or hurdle amounts involved (say liquidation preference, etc.) you fill in the numbers. In my opinion that would reduce legal fees and speed up the process quite a bit.

        1. JLM

          There is a bit of a precedent here if you think about it. Charles Schwab.First, CS severed the cost of trading stock from its archaic and historic “commission” basis and re-priced the transaction by looking at the actual transaction cost to transact the actual business while divorcing the mythical “service” component.He then repackaged over time the service component as a discreetly different service that one could opt out of completely.The real secret is that the securities industry settles its disputes with an industry controlled arbitration arrangement which streamlines and dumbs down its compliance costs up to massive criminal fraud. It also mandates that the brokerages have huge liability policies against which customers, in the unlikely event they actually win, can recover.Frankly, this is the model which should be adopted for health care tort reform. But I digress.If VCs would propose a set of model documents (as they have) and mandate industry influenced (not controlled, just influenced) binding arbitration as the only dispute resolution technique then the business would be streamlined a la Charles Schwab.This methodology would ensure that given paragraphs or provisions are interpreted in a consistent and fair manner forever without the necessity to continually litigate ‘who put the overalls in Mrs. Murphy’s chowder?’Said another way — it’s time to stop paying by the hour for legal docs which have been sitting on somebody’s hard drive for a couple of decades.In closing — Charles Schwab revolutionized the entire industry and nobody delivers such transaction business even remotely like they did before Chuck saw a way to make a buck!The VC business would be greatly enhanced if the cost of failure were dramatically reduced — only by wresting the sugar teat from the sucking maw of the legal profession. And, hey, I like lawyers!

        2. Antone Johnson

          Hey Joe, I really like that idea. It actually tends to be what happens in practice (at least at firms that crank out venture deals in large numbers, like my alma mater, WSGR). A lot of cutting and pasting goes on from prior deals. To their credit, WSGR actually created a Term Machine Generator that allows you to input business terms and it outputs a RTF document that looks like a real term sheet in standard format. See my blog post about this at Mashtag ( a lawyer, it makes me wince a little to think of how much of our work could be replaced by software like this — and there’s no substitute for some common sense and accumulated wisdom from years of doing deals — but there is certainly room for using technology and standardization to streamline things.

      2. Phil Michaelson

        I’d really enjoy seeing your thoughts on governance for early stage startups.

  2. robertavila

    Why not take one of the “standards” make additions as one sees fit, use it and post the amended version (with out particulars) for other to use as they see fit? A Wiki-contract?

    1. fredwilson

      or post the “simple series a” which is a set of documents we’ve closed deals on without negotiation.

  3. andyswan

    I understand saving some costs and complexities, and having a template for entrepreneurs to better educate themselves on the stuff that typically matters to investors…..but at some point you’re going to have so much standardization that the document becomes a crutch.These are deals between two or more parties. There are a lot of reasons why one should differ from another—not just in terms but in structure. I don’t see a lot of value in creating a new “box” to think inside of when it comes to seed rounds.It’s always a bit of a red-flag when the power-players of today try to establish the “standard” practices of tomorrow, in any industry. Innovation first!

  4. kidmercury

    sorry to see you beefing with my good friend marc andreessen. hope you guys can patch things up.

  5. pfreet

    Maybe there needs to be three set of docs :-)1. Fair to the entrepreneur (experienced teams)2. Harsh to the entrepreneur (less experienced teams)3. Nasty to the entrepreneur (newbie teams)

    1. fredwilson

      i don’t think that’s the right formula. we are happy to use the same forms for all three classes of entrepreneurs

  6. Kevin Vogelsang

    What needs to be created/circulated (it may already exist) is a document that contains explanations of all the “standard pieces.” There are common moving parts used in term sheets. Somebody should take the moving parts from these “standard forms” and list them out with an explanation. This list of “standard pieces” could be shopped around to people such as yourself, Fred, to add any that you feel are missing. It would be educative on multiple levels (the terms, the minds of the investor, etc.)In fact, it should be easy enough to create a matrix that illustrates the differences between the standard forms, and add extra columns for “missing parts” that more experienced members of the community could fill in.

    1. andyswan

      You may find this helpful….I welcome any collaboration:

  7. markslater

    so we are working through founding and financing docs for a company i am a founding member of, and our counsel has placed our restricted shares on a vesting schedule even though we own 100% of the company today. i have never heard of this – as far as i am aware – the founding group owns 100% of all stock (restricted) and sells a portion of this (in whatever instrument with whatever terms) to the new investor. Why as founders are we being asked to vest a portion of our ownerships stakes that we theoretically already own?

    1. fredwilson

      the best reason is to protect you from each other leaving prematurely with a huge chunk of the company

      1. markslater

        is this standard now fred? its admitedly my first time coming across this

    2. JLM

      Hmmm, how can one “vest” something one already owns? There is no “theory” here, you either do or you do not own those shares. If you do own them, don’t let Jack trade you a bean for them.Never, ever, ever, ever, ever, ever, ever mix your personal finances and the company’s finances. If you already own something, sweep it off the table and deal w/ your business finances separately.I would further suggest erecting a barrier against a mythical “clawback” by designating some of the shares as your spouse’s separate property, putting some into a trust or some other mechanism which clearly indicates that the shares are not the trade bait of the company.If an investor or your partners want to deal with longevity, employment or golden handcuffs issues — create new incentives or arrangements or agreements which reflect that desire. Stock options, incentive compensation tied to longevity or performance, employment agreements — all serve to tie individuals to businesses.Believe me the money guys will find a way to ensure their ownership is real, present and undilutable.BTW, pragmatically you are not likely to sell any founder shares to the new guys, you are more likely to issue new shares thereby diluting you.In these new shares, you will have the currency to fund options, incentives and other golden handcuff provisions — but don’t let them get their hands on your existing shares.

      1. markslater

        this is great feedback – thanks – we have a call with Wilmer at 3pm today on this – i’ll post the outcome of the discussion

    3. Kevin Vogelsang

      You DEFINITELY need a vesting schedule. Couldn’t help but comment. Personally, I think using a one year cliff is the way to go (or what I would want the next time I sign these agreements.) I think it enforces the committment that you need from people. But this is a whole ‘nother topic I’m sending us off on….(Although, I’m curious to hear how people feel about putting the schedule on a cliff.)

  8. Dan Lewis

    Standardization is not necessarily a good thing. Contracts are designed to capture the mutual assent of two parties contemporaneous to that assent, in as complete a fashion as possible, in case of a future dispute as to the terms of the agreement. When you standardize agreements, you rob yourself and your partner of the important process of actually thinking about what you are mutually agreeing to.In a lot of cases, that’s fine. Residential landlord/tenant and most home mortgages spring to mind. But in those situations, there’s two things which aren’t present in VC funding: (a) a huge volume of deals which the vast majority of the population enters into at one point or another and (b) a lot of regulatory and common law clarity on the matter which recognizes that the assent to non-core terms are a fiction and deals with them as such.But in the VC situation, it’s a nightmare. A very, very small subset of the U.S. population will ever be signatories to funding documents, and those on the entrepreneur side are unlikely to be in the situation more than once. There’s no layperson understanding of what those docs say. Standardization doesn’t fix that.What I’d do, instead, if I were a VC? I’d put together a list of attorneys which my portfolio companies (and if necessary, portfolio companies of other VCs) used to paper their funding round, and find out how much they charged on average. Once I got to a signed term sheet, I’d give to the to-be-funded entrepreneur — outside the funding process, tied to nothing — that list and enough money to retain an attorney therein. The entrepreneur would be invited to talk to other entrepreneurs who retained the attorney, as is the usual course of business. And I’d agree, informally of course, to not retain that attorney myself past present or future, to avoid conflicts.Then I’d call a meeting — me, my lawyers, the entrepreneur, his lawyer. We’d go through the doc and discuss, and when the other side was ready to sign, we’d sign. (Or revise, etc.) It’d be an easy experience for the entrepreneur.The goal is not to standardize, but to demystify and make non-scary/inexpensive for the entrepreneur. Standardization fails because it’s lazy and, in the end, does not actually accomplish those goals.

    1. kidmercury

      standardization enables scalability. the more the fund, or the more anything for that matter, wishes to scale, the more standardized it will need to be.

      1. Christian Brucculeri

        Ironically, these are both great comments. In the end, the intricacies of a deal need to be taken into account.Kid, I think as Fred has pointed out earlier, scaling of the V.C. industry is not necessarily a good thing. There are only so many good ideas out there at any given time.

      2. Pete

        It’s not so much the need to scale as the need to shrink. Assuming the rounds are smaller than they used to be–capital requirements are smaller for internet companies vs hardware/tech–so the legal fees need to shrink in proportion.

    2. ShanaC

      I think there should be some recognition that there is a slight adversarial relationship at work here- the Entrepreneur and VC should have slightly different needs and wants in order to get to a compromise position that ultimately gets both of them a fair deal. It might not be best from the Entrepreneur’s point of view, even if the vast majority of clauses are agreed upon already and everyone is on good terms, to use the VC’s chosen lawyer: it’s much better to use one that represents your true interests, and one recommended by the VC may have slight loyalty issues to him/her (remember, the VC brought in business to that lawyer, not you, Mr./Ms. Entrepreneur.) In the tightest areas of negotiation, one should be as free of influence as possible and feel free to be honest- do your research, and think about searching around for your own lawyer. (though if the VC recommended lawyer is the one everyone else is recommending, just go with that person…get good seasoned representation first….)

      1. Dan Lewis

        Most entrepreneurs aren’t well situated to find a good attorney, andthe time spent in doing so won’t really lead to a better result (orless expensive one) than via the system I propose. And I havesafeguards in my proposal: the entrepreneur chooses from a list; thetypical rules against conflicts for attorneys is made explicit; thestandard legal ethical requirements demand that the attorney be loyalto his client; and the reputational hit both attorney and VC will takeif they even informally/unintentionally collude.

  9. DavidCohen

    Fred, I couldn’t agree more. The differences between all of these are often subtle, and it’s a matter of choice of the best starting point. Any of them can save a great deal of time and money (especially in a simple angel deal) depending on what you need. Ours (TechStars) are starting to be used quite widely, and we often field questions about the differences between the various forms that are out there. Frankly, we don’t know, because we haven’t studied the others in detail. I think the reference to open source makes perfect sense, but what is missing is the simple comparison chart between the standard forms, so that one can easily choose the right starting set. Based on this idea, I’m going to ask a University of Colorado law student to consider a project to create a simplified comparison chart and see if we can’t make some more sensible progress on this. Whatever they come up with will of course be open for comment/change by the sponsors of each set of documents. Good idea?

    1. fredwilson

      another commenter asked for that. it’s a wonderful idea. thank you for doing it.

    2. owendavis

      Really good idea.Many seed stage companies (and probably some angels) do not have enlightened, experienced attorneys, and the idea of spending a chunk of the company’s seed capital for the documents is just not a good use of that money and a huge disservice to the company and to the investor. At this stage most of the terms are straightforward, and a standard set of forms/terms would help everyone be happier about this aspect of the process.

    3. Scott Barnett

      Let’s take the open source software analogy just a little farther… Fred quoted Marc Andreesen who said “Lawyers have a financial incentive to make things more complicated because they are paid more.” And since IBM created some open source software, everyone should just use it. But as Fred also points out, there is not a single product category where just a single open source project exists (unless it’s so small to be insignificant). So, do software developers work on a different implementation of an existing open source project because they are looking to get paid more? No – because they think they can do it *better*. It’s human nature to think you can take something and make it better, especially those who haven’t tried yet. So, first time entrepreneurs are going to have a hard time “settling” for a boilerplate because their idea and structure are so new/different/unique/world-changing/etc.So, you must realize the human factor of negotiation, which has been mentioned several times here already. What I really like about DavidCohen’s offer is the same as comparing two competing software products by their features – a term sheet has a finite number of main features – if we have a comparison chart of which templates cover which features, that would be a huge benefit to this community, IMHO.

    4. Scott Edward Walker

      Great idea, David – but I don’t think a law student can handle it. I think you need a lawyer with strong financing experience – who understands the issues and can cut throught the docs pretty quickly. If you like, I can try to get one my guys to jump in. Cheers, Scott

      1. DavidCohen

        I was thinking of someone under supervision of someone with that experience, but a valid point. do you have somebody who would want to jump on it?

        1. Scott Edward Walker

          Let me ask around. I’ll get back to you tomorrow.

          1. Yokum

            Actually, Brad Feld has already reached out to a few folks that were responsible for drafting the open source documents. I suspect that this working group will produce a comparison chart or some explanatory document as part of the discussion process.

        2. Scott Edward Walker

          David – I am following-up. In light of Yokum’s comment and discussions with members of my team, I will defer to Brad Feld’s working group to put the chart together. Indeed, this is a huge project. In the event that a chart is not created in a timely manner, I will revisit this issue. Pls keep me posted. Many thanks, Scott

  10. Dan Kahan

    This is a great post. And don’t forget the NVCA documents (, which are also a valuable resource and the result of efforts among lawyers at multiple firms.While some lawyers hate these kinds of efforts, others of us welcome them. My own sense is that attitudes toward these things depend largely on whether a lawyer’s revenue model is aimed at generating legal fees primarily from early-stage financings or instead from later, more significant events, like exits. If the former, then there is arguably a directly inverse relationship between the proliferation of open source legal documents and your revenue. But if the latter, then these kinds of forms can save time and money during the stages when startups most need to economize both.<lawyerpitch>But as Fred rightly points out, each of these open source document sets leaves out important legal concepts, many of which are not easily ported from other document sets. Nor do they capture the unique aspects of a startup’s business (such as operations in multiple countries) that may require specialized contractual provisions or even separate agreements in order to reassure investors and protect the company. It is in these kinds of scenarios that experienced and efficient lawyers add a great deal value.</lawyerpitch>

  11. ShanaC

    I think what is interesting looking at this- as a non-lawyer, if you don’t like something from document set a, you can take it out and hack it with something from document set b. It makes it much easier and much harder to maker custom documents because the pieces are there, you can see what is good, and it forces you to realize what situations really need custom work.That is sort of interesting from a legal development point of view. Kind of like open source document development….Never seen this before. I wonder what will happen to law as a practice from the transactional side if they did more of this (I can’t say much about the litigation side….)

    1. JLM

      They will spend fewer hours at an increasingly higher hourly rate.

      1. ShanaC

        I don’t know about this JLM, there has been a massive collapse recently inthe law business. The traditional pyramid model of associate -> partner isfailing, and I wonder if in part open sourcing these documents is why. Ialso wonder what should the billing model be if this is going to be the newway to “work as a lawyer”

        1. Anne T. Monopoly

          I doubt that open source documents is doing much to the “associate -> partner model” … there’s just less money around. And we have too many lawyers around; that’s why you see so many of us taking jobs as TV news commentators and analysts .. of which there are too many as well.

          1. ShanaC

            I need to mull over this. I knew about the in-house boilerplate documents.I still wonder how much publicizing and sharing boilerplate documents willchange in what is a very ancien regime kind of job. It empowers clients insome very specific ways- it makes simple documents mextrodinarily easy, butI can’t imagine the cost and army involved for a complicated transactionalissue that the various boilerplates don’t fit. It is the kind of thing thatwould happen very rapidly too, ala coding where you see the public knowledgeconstantly being built on top of for some very powerful machinery (have youseem some of these database systems)That’s kind of the idea that’s striking me- will you see the evolution of amore complex transactional law underneath a very simple to use out of thebox transactional legal system if everything is in public….and if so, whatis the cost?

          2. Anne T. Monopoly

            it seems technology always solves one complexity problem and creates 10 new ones … what’s the cost? I don’t know of course, but as “democratizing” as technology can be, the high-end providers (and those who manage to look like one) always find a way to get money out of client’s pockets .. if transactional complexity does indeed increase, it will be even easier to charge for fear of that complexity .. you need to be “in good hands” you know …

          3. ShanaC

            😉 This is why I was wondering what the lawyers think of all of this. Frommy perspective as an outsider (I got to do a small amount of observing of amajor lawfirm when I was dating my ex), this could be a massive shift in theway transactional law is practiced, especially if this technique ispublicised for say- dirt law, how to buy an apartment building in Queens.That and I have a number of friends in law school, and I wish I knew what totell them to beef up on if this a change that will cause structural changesin the way lawyers and firms to practice the craft of law.

    2. dgulbran

      Speaking as a lawyer–I think it’s a great thing. I love it when my clients come to me 1) knowledgeable and 2) prepared.Templates to build on and customize are a great thing–especially if entrepreneurs have access to good explanations and comparisons. Lawyers already use templates *all the time*. You can have Wilson Sonsini as your counsel, and I guarantee they are relying on templates of the deals they’ve done before. That is *not* a bad thing–standardized language with clear and unambiguous interpretation is the goal of a good attorney.I understand the hostility toward attorneys–there will always be bad ones out there, milking every six-minute increment. But there are also those of us who see our role as one of trusted advisor. I’m in it for the long haul with my clients, which means providing them valued services at a fair price. I get paid to always have their back. That doesn’t mean being obstructionist–it means explaining the risks and benefits to all of their options so they make informed decisions. Standardized forms don’t negatively impact what *I* do for clients–they often help make my role even more valuable by helping educate clients and focus my time on substantive issues.Bespoke suits might look great and make you feel extra special, but an off-the-rack suit altered to your your measurements can look damn fine, too.

      1. Antone Johnson

        “Speaking as a lawyer–I think it’s a great thing. I love it when my clients come to me 1) knowledgeable and 2) prepared.”Absolutely! Couldn’t agree more. I just banged this drum hard in my blog post yesterday talking about WSGR’s online Term Sheet Generator, as well as the new Series Seed documents:

      2. ShanaC

        I’m not going to disagree with what you say- I’m just curious if you think The idea of open sourcing template documents to everyone in transactionallaw will fundamentally change what you charge for? If these documents are in the public sphere, what kinds of law things needto be bespoke? Further, if there were a central location to get open sourcedocument templates of this type to pre-populate and mess with in a privatematter (because of ABA and other Bar rules), would the law market take it onas a way of lowering their costs?

        1. dgulbran

          I think it already has fundamentally changed what we charge for and it is already lowering legal costs. Sites like LegalZoom and others have already had an impact on lawyers practicing in areas like family law or real estate. There is no denying that increased access to legal forms/information has impacted our business.That said, I think it’s only negatively effecting the lawyers who relied too much on volume as a business model (as opposed to customer service–a difference best explained in a longer form post) and the traditional “BIGLAW” or firms that work on the billable hour model exclusively.Litigation is the one area that I think will always remain “bespoke”. Handle your own litigation at your extreme peril. However, in a transactional law world, I think very little needs to be “bespoke”. We constantly stand on the shoulder of the transactions that came before us. Starting with a template and building on that is the way most all transactional work has been done, it’s just that in the past, each firm had their own set of templates. Now clients have the tools to start some of the groundwork (and education) ahead of time. That might hurt “BIGLAW” who were traditionally billing for that groundwork being handled be associates (or even paralegals) but it doesn’t hurt attorneys who work on alternative billing models. The slaughter in the legal services business is predicated on the fact that clients have become more educated, and as a result, aren’t allowing lawyers to bill and bill and bill for the grunt work they know can be done faster and cheaper.The smart firms are already adopting to the new world with unbundled services, flat rate billing, etc. The rest are lumbering dinosaurs wondering what that crash was after the shooting star and why the sky is cold and dark.

    3. Anne T. Monopoly

      Shana, what I hope will happen in law practice on the transactional side is that we get freed up from some drudgery and can spend more time keeping up with the client’s business and providing good and wise counsel. As dgulbran points out, most lawyers have some kind of “forms chest” at the ready and build out documents from them already, so none of this is really a startling development. If it promotes business activity by lowering costs for some clients, all the better.

  12. JLM

    In life you don’t get what you deserve, you get what you negotiate!The fact that experienced VCs have taken the time and trouble to produce “model” documents is laudable. They have set expectations, they have informed entrepreneurs and they have educated themselves, entrepreneurs, the legal profession and the industry. Bravo!I doubt there is any real wisdom in going beyond what they have already done. As they say, there is little education in the second kick of a mule!In this day and age of word processors, just use the model document provisions you like and adapt those that you find elsewhere and make up the ones that are not present. Customize the document to your own pleasure and utility.There is something to be said for the differences as we are all informed by that first kick of the mule and everybody has lived through things they never want to repeat. Viva le difference!A good contract has never really made a bad guy behave.A bad contract has never prevented a good guy from doing what is right.The most important thing is not the documents, it’s the people on the other side of the table.

    1. Wavelengths

      And, to pull your quote from Fred’s Monday blog:”Be careful with whom you do business.”

    2. joeagliozzo

      “In life you don’t get what you deserve, you get what you negotiate!””A good contract has never really made a bad guy behave.A bad contract has never prevented a good guy from doing what is right.The most important thing is not the documents, it’s the people on the other side of the table.”Awesome. Obvious, but you don’t think about stuff like that until somebody else says it. JLM, you should create a book of business quotations “to live by”.

    3. Antone Johnson

      “The most important thing is not the documents, it’s the people on the other side of the table.”Absolutely true, JLM, but the people on the other side of the table can change, whereas the documents don’t unless and until there’s another financing round or liquidity event. Founders outgrow companies, companies outgrow founders, VCs change firms, business models change, new investors come in, Board members turn over, strategic deals get struck which lead to conficts of interest, founders get divorces and turn over large chunks of equity to hostile ex-spouses, and on and on. Ask any experienced Valley lawyer — you name it, we’ve seen it happen, and it gets ugly.There’s a reason the “old school” set of financing documents runs 80 pages or more. We lawyers get paid to plan for every contingency and make it as clear as possible up front what people’s rights and obligations are when things turn nasty. And it’s vastly cheaper to do that up front than to do it later in litigation — which is an outrageously expensive, inefficient way to resolve things, potentially ruinous to a startup.It’s cheaper still to engage seasoned lawyers who know what they’re doing but have started their own small firms to craft these documents at billing rates that are 30%+ lower than what the big guys charge. (Sorry but I had to get that plug in there!) I have a feeling Scott Edward Walker will back me up on that one. 🙂

      1. JLM

        Perhaps I have been a bit ham handed in expressing my thought in regard to the importance of the documents.The documents are critically important and while I am a firm believer that you don’t get what you deserve you get what you negotiate — the documents have to reflect that negotiated agreement.When entrepreneurs are able to see and understand the implications of different deal points because of “open source” documents and have had an educating chat w/ a seasoned counsel, then the entrepreneur can make better decisions. About almost everything.I am not suggesting for a second that the entrepreneur and his attorney should be inattentive or cavalier about the implicatons of what has been agreed to. The documents should be world class but don’t fool yourself you are not out of the woods should something go wrong or should you encounter something not anticipated.I am opining that over a third of a century of such experience the people aspect is at least as important and in most instances is more important. Again, this is not intended to demean the importance of the docs or the quality of the legal work.The entrepreneur’s lawyer is going to enforce the agreement but the best way to resolve problems is before they become “disputes” and before litigation is commenced by either party. This ultimately depends on the character of the people involved.I have gotten more done and made more money on the strength of a handshake than I have ever done in a courthouse; and, I have hit some 7-figure licks in litigation. I hate it. It is mindless. It lowers our sense of fairness and humanity, it drains our energy and it leaves us mean spirited and small.

    4. William Carleton

      Actually, where huge differences in financial returns, to say nothing of ultimate ownership and control, will turn later on relatively obscure choices made at the outset, financing documents are extremely important. Sure, many deals between parties that trust each other can be documented on a sheet of paper, or in an email; but financings are not in that category. That’s because having good people on both sides of the table won’t help you fix unintended consequences later. For one thing, the good people on both sides of the table will have fiduciary duties to disparate groups, and they won’t have latitude to cut the other guy a break when he says, later, “oh, did I give you participating preferred? I didn’t know and I didn’t mean too; let’s just change that.”I really like how Dan Lewis approaches this issue in his comment above. It’s important to understand upfront what the financing documents say. It almost doesn’t matter whose forms you start with; you still have to read them and understand what they mean and model the impact that they will have in different scenarios, and whether those outcomes make sense.

      1. JLM

        In my comments I am not suggesting any shortcuts or a lower standard of legal work or documentation. I am strongly suggesting that in the final analysis a well crafted agreement will still be held hostage to the character of the person sitting across the table.The Titanic was the best crafted sailing ship of its time and had the benefit of cutting edge naval engineering.The intellectual rigor that went into crafting that amazing vessel did not overcome the dumb decisions which were made in regard to its operations and it sits on the bottom of the ocean — the best engineered vessel to have ever……………………………………………sunk.Underwriting the guy on the other side of the table — references, litigation history, longevity with the firm, personal commitment to thet deal, sense of business ethics/honor, philosophy of investing and a million other personal characteristics — is just as important (in my view more important) as the quality of the documents.I am not suggesting for a second that the documents are not important.These two issue are only as important as, say……………………..oxygen and water.

        1. William Carleton

          Looks like I misunderstood your emphasis. I see what you’re saying now; thank you.

  13. Alan Warms

    Fred – I love the idea of doing anything that can save startups cash and complexity – and I like the idea of having a set of standard docs. The only issue you’re going to see is that different folks have different things they “have” to have. As an example for me, as an angel investor, I like to get participating preferred and right to keep investing to maintain my ownership (and as entrepreneur I always give this). VCs I know would much prefer to come in to an angel-backed company that has one class of shares. I would never buy common as an angel, and my argument would be if the angel amount is relatively small compared to VC round – and if you can get the VCs to come in pari-passu (sp?), then it’s ok for all concerned. Some people (was having conversation with another VC on this yesterday) will tell you angels should only get straight preferred if that, and then convert to common with the VC round. So just need to be careful about “starting points” vs. “standards.”

  14. William Mougayar

    Anything that lowers costs and/or saves time for startups is a great idea, especially this one. If 80% of a final doc is standard, and the rest is specific to the actual situation, then that’s a step forward. I think some lawyers will resist using someone else’s work for several reasons. At the end, the entrepreneur owns the relationship with their lawyer. Too much DIY might result in blind spots that will haunt you later. But there’s definitely no need to re-invent the wheels, although as Fred pointed out in the last paragraph, undoubtedly there will always be 3 ways to say the same thing.The biggest value for having these docs as open source is that the entrepreneur can educate themselves on the range of terms ahead of time, i.e. you don’t have to wait for your lawyer to see something for the first time.

  15. jsrand

    Alan is right regarding different investors having different requirements. That’s why you don’t see that many VCs that have agreed to adopt wholesale the notion of the templated document. I even see angel-led deals where the angels insist on using the NVCA model documents, which I think most practitioners would view as heavy-handed, pro-investor (particularly for a first raise) and what you rely upon when you’re afraid of leaving something out.The fact is that in this day and age, it makes no sense for a lawyer focused on this sector to charge a lot of money for a first financing, regardless of whether or not you’re using a “template”. I would disagree with Andreessen’s premise that the lawyer’s financial incentive is to overcomplicate, at least in this instance. I want to establish a relationship with a startup prior to the first financing and, as in any good partnership, we hope that the relationship grows. In this day and age, entrepreneurs have lots of access to datapoints about how much a first round should cost and what it should look like, and the law firm that expects to profit on a first financing will spend a lot of time and effort looking for new clients to replace the one that just went out the door.I welcome the use of templates (I happen to think my firm’s set is pretty good). They are at the very least a good educational tool for entrepreneurs, not to mention good marketing tools for law firms who want to look user-friendly. But at the end of the day, it’s the principals who dictate the business terms.

  16. Aviah Laor

    1. Open leads to transparency 2. Transparency leads to standards3. Standards lead to efficient market.4. Efficient market leads some players to undermine transparency, to get the advantage back, e.g. derivatives.5. (Collapse and) Repeat.But overall it’s an important progress, another change brought by entrepreneurs turned VC. Once VCs go with founders on cashing early, incentives are aligned and legal docs are easier to formulate.

  17. BDavey

    I am an attorney, have familiarity with most of the “open source” documents and am active with start-ups; I have no problem using, or recommending that a client use, any version of these forms. In practice, none of these forms are ever a satisfactory representation of intent of either side in a transaction, but are a good place to start. As Fred stated in post, there are just some issues that an entrepreneur or VC, once they realize what they are giving up, will want to be handled differently. That is where the fees start to run up, but only slightly. Please remember that in angel or series A round, company side representation, a large portion of the fees generated are as a result of due diligence, fixing a company’s records and creating schedules for the SPA, not the negotiation of these forms. My firm does capped fee deals, making any money on an angel or series A can be a challenge, but we are willing to take that challenge to start a relationship with a new company/entrepreneur.

  18. Dave Broadwin

    Enjoyed this post. I have been a big proponent of standard forms in the VC space for some time and feel inspired to reply to a couple of the comments.One is that there is not enough volume to be able to make the forms truly forms (like standard leases). It may not be quite that cut and dried, but there is plenty of volume and, in the Series A space, there are good widely accepted forms promulgated by the NVCA. According to our firm’s published research, these forms are in fact widely adopted in New England.At the recent NVCA forms group meeting in LA, Ted Wang did a brief presentation on his seed round forms. I think it is a great project and potentially a major value add to the early stage investing community — where efficiency is really important.Which brings me to the other point I want to comment on. The notion that lawyers are somehow against the use of forms because it reduces the number of billable hours it takes to produce a document is contrary to my experience. With respect to angel/seed deals it is hard to imagine doing them without write-offs. We love these clients and want to work with them, but we love them and want to work with them because they are exciting, challenging and building new business that will have larger more complex legal problems in the future. Anything that propels these clients forward at a faster rate, is likely to be welcomed by the legal community.

    1. William Carleton

      Dave, totally echo your last paragraph. What lawyer wants to charge anyone, company or investor, for writing new documents? The point is (as Dan Lewis says above) to get to a deal that all sides understand and accept.

  19. Antone Johnson

    Great post, Fred. One issue glossed over in the discussion of “standard” forms is that law is by its nature an adversarial process. Shake hands on a deal, that’s great, but the lawyers on both sides get paid to plan for all of the what-if scenarios and build them into the documents. We may have a financial incentive to make things more complicated as Marc asserts, but we also have a duty to do our best to protect against the possibility that ambiguities or mistakes in deal documents will erupt into litigation years later — and a company can easily spend more on legal fees in a few weeks of litigation than it paid for an entire venture financing round. I say this from experience, having paid outside law firms more than $2MM a year as GC at my last company before starting my own practice. The vast majority of that budget went to litigation. With apologies to my litigator colleagues, litigation in America is a massively, ludicrously inefficient monster that sucks up billable hours by the hundreds and acts as a tax on successful companies. (On rare occasions, it can actually achieve justice or right wrongs, but don’t count on it.)For a fuller discussion of containing legal costs in early-stage financing deals, please take a look at my post at Mashtag (

  20. ginsu

    I think we’re missing one point: The transaction costs (including legal fees) of any individual deal (including VC financings) reflect a systemic allocation of cost vs risk, not simply the allocation appropriate to the particular deal. Somewhere in this concept is the key to radically altering the cost structure, but it’s not pretty.A seed financing costs (let’s say) $10K not because the work on that deal is worth $10K, but because across *all* seed financings, roughly $10K of work will avoid litigation related to the deal terms 95% of the time. (The lawyers commenting here are not kidding when they say no lawyer is getting rich off of these deals – seed and Series A work are generally loss leaders for lawyers at the big firms.)But avoiding litigation 95% of the time is a questionable choice of target risk. Entrepreneurs and investors fight over past deal terms in cases of success, not failure, because in failure there is no pie to fight over. 33% of seed-funded startups will fail without any question of company/investor dispute. Of the remainder, a substantial majority still won’t have litigation related to financing deal terms. So something like 70% of startups will never have a dispute over financing terms even if the documents are written poorly – why are the documents negotiated to avoid litigation 95% of the time? (In case this isn’t obvious already: all of the numbers here are made up, but I believe them to be close enough to illustrate a valid point.)The answer is because litigation is really frikin painful and expensive. Consider a hypothetical distribution of 100 seed financings like this:100 companies pay $10K each for financing legal fees. That’s $1 million.95 of them never have litigation related to that financing.5 of them have litigation, and it costs them $1 million each.Total systemic transaction cost: $6 million.Compare to this distribution:100 companies pay $1K each for financing legal fees. $100K.70 of them never have litigation.30 of them have litigation of $1 million each.Total: $30.1 million. Ouch.In the first scenario, 70 companies wasted $9K each. No wonder they’re mad. 20 companies avoided litigation, saving almost $1 million each – but they’re not happy about it because you can never actually know that you avoided litigation due to solid document drafting. 5 companies were screwed no matter what. So you basically have 100 companies that are either pissed off or indifferent about their legal fees.In the second scenario, 70 companies got a great deal on legal fees at $1K each. 25 companies were each $9K wise and $991K foolish. 5 companies, again, wish they were run over by a bus yesterday. But hey, 70 out of 100 companies being ecstatic about their legal fees seems like a great outcome, right? That is, as long as you ignore the fact that the systemic cost here is more than $24 million higher than the first scenario where everyone hates lawyers.So here we have a +70 improvement in happy companies in exchange for a 400% increase in systemic legal cost. That’s probably not the right outcome. But could we get to a +50 improvement for a 150% increase in cost? Would that be worth it?My point is, the problem we are trying to solve here involves time-shifting the systemic cost of legal fees, and optimizing for a risk/cost reallocation among outcomes that is not ridiculously painful. I believe that this is the only way to a radical reduction in upfront legal costs for these kinds of deals.

  21. Mark Essel

    Does it make sense to find an early employer or founder that’s primary role is fund raising?Pitching a more radical idea could take all of one’s attention. Better to spend that energy on making something people besides investors find value in. Customer funding is the ideal growth trajectory?

  22. jeremy_freeland

    Great thread. I like the suggestion of a modular approach along the open source model.I think the fundamental problem with standard forms is the expectation that the deal is standard, or will closely adhere to standard. It’s seldom good practice to let the legal docs drive the deal, especially docs that tend to be lengthy and complex – it’s simply not an efficient way to negotiate. It also pre-supposes that the form docs will need revision, and revision = $$$.It makes more sense to allow that the company and the investors should have relatively free rein to create a mutually agreeable term sheet. This reflects that each deal will vary, depending on its own circumstances. It lets the business people drive the business terms, and focuses the real value of the lawyers’ time – experience and perspective gained over doing many similar deals, and seeing how they pan out over time – on structuring the deal, as opposed to documenting it. (So long as legal fees are driven by time (and even on a fixed fee basis, law firms look to time spent as a measure of their own costs), it’s reviewing, negotiating and then revising the terms of long, complex agreements that takes time and makes the process expensive.)Once the term sheet is finalized, it would be open to the parties to use peer approved, modular terms, to reflect the key terms. As with open source software, the expectation would be that terms would evolve and be refined by the community, e.g., to deal with changes in the law, or changing economic conditions. I’d just ask that no law firm makes their contributions under the terms of the GPL 😉

  23. bramcohen

    Fred, I’m very curious what the ‘critical stuff that we simply won’t do a deal without’ which is missing from the Series Seed documents is, and whether the other documents you list support those features.

  24. Saul_Lieberman

    Everyone has their own ‘critical stuff that we simply won’t do a deal without’. But there is still real value in starting with an imperfect form which both parties already know well. In a former life as a NY real estate lawyer, many law firms adopted the Blumberg Office Lease form as a standard for smaller transactions… and prepared standard riders to accommodate their “critical stuff”. The form still provided efficiency and value: the other side only needed to focus on the rider because they were already familiar with the form.We should try to start on the same page even if it is unlikely that we won’t make changes.

  25. andrewparker

    You’re on the right track with the open source analogy, but instead of being like software packages, I see them more akin to open source licensing. GPL vs LGPL vs Affero GPL vs MIT vs Apache vs BSD License… all of these are in a similar spirit of openness and simplicity, but the distinctions between each flavor are important enough that they are all necessary and independent of each other.

  26. bernardlunn

    I am looking at Legal XML (aka Semantic tech for law, aka something like XBRL but for legal docs). That would enable the auto comparison of the different open sourced funding docs that you mention. There is a lot of interesting work going on in this area. For example, this guy in the UK:…And on a big scale, what Carl Malamud is doing with Law.Gov (“America’s Operating System”).…I am interesting in talking to anybody working on this. Law is a $250 billion global market and open source is about to hit it….

  27. Susan Morgan

    Hi Fred – There will always be some differences amongst attorneys in detailing the terms of a financing – even an early/seed stage financing. But there are a number of benefits to trying to arrive at some consensus among terms. I discuss this in more detail in a recent post on the Walker Corporate Law Group blog – maybe you will agree with (at least some of) these positions? see:

  28. Dan

    What do the Series Seed documents leave out that you require?

  29. fredwilson

    these are all straight preferred without any bells and whistles. the differences between them are in the other stuff

  30. Kevin Vogelsang

    I shivered when I read “standards board”

  31. JLM

    While there are a million horror stories out there, there are 1,000,001 solutions to these problems if folks are rational.At the end of the day, we are just talking about assets and business control here.Assets can be dealt with via buy-sell provisions, options, puts and other gently forced trade mechanisms. Or, one can simply live with the proposition that things change and you have to deal fairly with the changes. What are you going to do if someone gets sick? You’re doing to deal with it in a sensitive, personal and fair manner but you are going to deal with it.As to business control there are corporate governance, Board composition, employment agreement and other “one off” crafted solutions which are routinely used by small and large businesses.You have to deal with these situation BEFORE the feathers hit the fan.But in the final analysis, everybody needs to understand everybody else’s objectives/restrictions/desires and deal fairly with everyone.People make things happen and fair people make them happen fairly.Get the people right up front. It’s tough to do but it is essential.

  32. Antone Johnson

    There are three major categories of “currency” that pay for founders’ stock in a startup: Cash or other valuable property (including forgiveness of debt); intellectual property such as code, site content, trademarks, logos, patent applications, etc.; and “sweat equity” labor (past, present or future). Depending on how this divides up among co-founders, it can make sense to impose different vesting conditions on each — and some investors are understandably queasy about putting in millions in cash if there are scenarios under which the lion’s share of value is expected to be created in the future by key founders’ sweat.To those who questioned how stock can be owned yet subject to vesting, the answer is that the shares are issued subject to a repurchase right by the company that lapses over time. So if you quit after a year with a linear 2-year vesting schedule, the startup gets to buy back half your shares at the price you paid for them (which was likely something nominal like $0.001 per share).

  33. andyswan

    I’ll buy that Charlie. I agree that these docs being “out there” and fairly standard is a good thing, so long as people don’t start behaving like they are the only thing.

  34. Kevin Vogelsang

    Thanks!And I agree with your above reasoning.

  35. andyswan

    Attorneys receive whatever they are worth and no more, and their client-retention or marketing techniques are no concern of mine.I do agree that these standard docs will be effective tools in that negotiation. But some deals will require and benefit from a creative approach…and entrepreneurs should be aware that alternatives to the “standard” exist. It always starts with a blank sheet of paper.

  36. Aviah Laor

    Attorneys receive they’re perceived worth

  37. Aviah Laor

    “there was a society of men among us, bred up from their youth in the art of proving, by words multiplied for the purpose, that white is black, and black is white, according as they are paid. To this society all the rest of the people are slaves.For example, if my neighbour has a mind to my cow, he has a lawyer to prove that he ought to have my cow from me. I must then hire another to defend my right, it being against all rules of law that any man should be allowed to speak for himself. Now, in this case, I, who am the right owner, lie under two great disadvantages: first, my lawyer, being practised almost from his cradle in defending falsehood, is quite out of his element when he would be an advocate for justice, which is an unnatural office he always attempts with great awkwardness, if not with ill-will. The second disadvantage is, that my lawyer must proceed with great caution, or else he will be reprimanded by the judges, and abhorred by his brethren, as one that would lessen the practice of the law.And therefore I have but two methods to preserve my cow. The first is, to gain over my adversary’s lawyer with a double fee, who will then betray his client by insinuating that he hath justice on his side. The second way is for my lawyer to make my cause appear as unjust as he can, by allowing the cow to belong to my adversary: and this, if it be skilfully done, will certainly bespeak the favour of the bench.”(Gulliver travels, J. Swift)

  38. andyswan

    If freely, mutually agreed price doesn’t reflect value, what does?

  39. David Semeria

    As JLM says, you get what you negotiate.Procedure is the lawyer’s best friend: these are the steps, and they *must* be taken…Says who? The lawyer.Cut to the chase and spare me the billable hours.Standardized documents are big step in the “cutting to the chase” part of the story.

  40. JLM

    This is exactly why I am advocating a return to settling disputes of all kinds by dueling.I am not picky — knives, swords or pistols. I personally prefer knives or pistols. You can get lucky with swords and they are not as reliable.Knives — my personal preference being the WWII vintage K-bar sharpened sufficiently to tame your beard in the morning and with a leather wrapped handle — on the other hand require a bit of courage to close with and carve up your adversary. You must not be averse to a spot of blood. A passing bit of study on anatomy serves you well.And pistols — hell, I’m a superb shot. I can put three bullets inside a silver dollar at twenty five yards. I am passionately in love with the Beretta .380. Enough punch to let everyone know you were there but not enough to recoil you off the target. The perfect dueling weapon.OK, too much information. Sorry.

  41. Aviah Laor

    So you are going to a duel without actually cutting half of your pistol or knife beforehand. Interesting 😀

  42. JLM

    OK, you have stumped me. What do you mean?

  43. andyswan

    What a great comment Aviah. Never trust a man who loathes his own power, for he doesn’t trust himself.

  44. Aviah Laor

    really? i don’t want to go into politics so much, but i got the impression that current trend is to cut your most threatening weapons to half

  45. JLM

    OK, a disarmament kind of thing?I get remarkably stupid and dense as the day gets longer. I was dealing w/ a substantial number of whiners today.I actually have a good number of pistols so I will only bring one and consider the others as “disarmed”.Today my azaleas are starting to set buds, so Spring is just around the corner!

  46. Aviah Laor

    a great season for duels

  47. ShanaC

    I like the azaleas, I dislike the dueling…if all contracts were settled this way we would be the mafia and a good chunk of us bloody dead….

  48. Antone Johnson

    It’s not really a free market if there is a limited universe of trusted firms who handle the lion’s share of the work. Like any profession, we have a huge range of quality in service providers, and clients understandably gravitate to the known “brand name” big firms who do most of this kind of work. Some of us are looking to disrupt that model by doing the same work at smaller firms with much lower overhead and passing the savings on to clients in the form of dramatically lower billing rates. I have to think that it’s only a matter of time until we succeed in making it a more competitive market — which always benefits the consumer.

  49. JLM

    You sound exactly like the kind of attorney/counselor that a young entrepreneur needs to neavigate through the VC funding minefield.First, while it is pretty intimidating the first time, lots of folks have done it and it follows a pretty damn simple concept — the guys with the money make most of the rules.As an entrepreneur gets a few notches on his shooting iron, the power shifts a bit and the power equation becomes more balanced. The ultimate luxury is to fund your own deal. However, I firmly believe that “debt is discipline” and that convincing at least one other person on the planet of the advisability of your deal is a good thing.I look at this exclusively from the perspective of an entrepreneur as I am into my second billion of other people’s money — don’t sell your birthright cheaply as it relates to stock, vesting issues and those tangible and intangible assets you bring to the negotiating table.Don’t be cocky but being an entrepreneur ain’t chicken feed. Your life force alone is worth something.Don’t wind the clock backwards while making a deal. If you have been working on something promising for a couple of years, the meter has been running.Too many young entrepreneurs trade away their bait for money. Money is dumb and in the end it is just something that is kept in the closet until dusted off and put into a deal. Money is dumb.Don’t get mad at the money because it will surely change its mind. Give it a chance to change its mind.Learn to negotiate. It is an art form. Take the Chester Karass negotiating seminar or go to Mexico, drink many cervezas and negotiate with the beach bandits. But learn to negotiate.In life you don’t get what you deserve, you get what you negotiate.Everything in life is negotiable — even the stuff that folks tell you they “must” have.Remember to negotiate.Give yourself a chance to get lucky.Take your time.

  50. Steven Kane

    last i looked, ted’s “standard documents” are for 1X Participating Preferredgod knows, i’m all for efficiency and economybut “standardized documents” really means “standardized TERMS”… and that makes me physically nauseousnote that all the parties proposing and preparing such “atndardized docuents” are all either venture investors or attorneys/law firms whose main business relationship is with venture investors – doesn’t suggest that entrepreneurs and founders interests are being reasonably represented

  51. Steven Kane


  52. fredwilson

    If series seed is a part pfd, I am shocked. That’s not right

  53. Steven Kane

    Maybe I am reading it wrong – isn’t the “Liquidation Preference” theequivelent of 1X Participating Preferred?in straight preferred, investors get no preference, just their choiceof either their capital returned or pro rata, whichever is greater…no?