TheFunded has published what it believes should be a standard termsheet in venture financings. Their argument is that the following balances the rights and incentives of investors and founders well, and the negotiation should be limited to valuation and amount being raised. Interesting point of view.
FFI Plain Preferred Term Sheet –
These are all commendable efforts and in my view, in the right direction. The issue arises when certain provisions are more valuable to one party than other (due to differential view on the business, different degrees of experience etc) – so in some cases, founders may be optimistic to not care about participation, but may want higher valuation. Or, the VCs may perceive certain additional risks and may want protection against those. Such deal-specific characteristics encourage “trade-offs” amongst terms – a la “if I have to offer a higher valuation to be competitive in the deal, let me add more participation”. A negotiation process in the end is about trading off what is less valuable to oneself for something that might be less valuable to others.
Would love to get thoughts from the readers on where they tend to fall on this debate.