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A Standard and Clean Series A Term Sheet

blog.ycombinator.com

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Re: A Standard and Clean Series A Term Sheet

#71

Post by tptacek »

rmah wrote: post #21
privateSFacct wrote: post #16

Earlier quoted context omitted.

Downvotes are because 1) This is a standard series A term sheet 2) This is a 1x non-participating liquidation preference. Plenty of folks sign term sheets with MUCH WORSE preferences. Participating 1.5x etc. This preference simply says, investor gets their money back if invested on a preferred basis during Series A. That's where the real problems often come, participating preferred at 1x+. This is not one of those te…

There's no such thing as "standard". "This is a standard contract" is something lawyers say to get you to agree to things you may not have otherwise agreed to. I'm not saying this flippantly. I've negotiated many contracts over the decades and I've heard "this is standard" dozens of times, but it's always negotiable. Note, I'm not saying the agreement presented is fair or not. That's situational. Just that "it's stan…

Which is why "standard" isn't an especially useful term; the better term is "market" --- what similar deals, negotiated repeatedly by people with similar leverage, have settled out to. These terms seem somewhat better for founders than market (but YCA might have unusually strong startups).

Re: A Standard and Clean Series A Term Sheet

#72

Post by deanmoriarty »

OiNG wrote: post #58
deanmoriarty wrote: post #46

I know this article focuses on founders, but I'd love to see something done in the industry for employees (especially early employees!) as well. One of the former companies I worked at never allowed early exercise and issued standard ISO with 90 day expiration upon leaving, which is unfortunately essentially the analogue of "standard and clean" when it comes to employee compensation. By the time I was ready to leave…

it is, of course, complete BS that this is the norm. however, be aware that you can negotiate for early exercise or 10 year expiration prior to joining. even if the startup has never done anything like that prior, they will make it happen if they really want to hire you.

I have a deep network of friends in Silicon Valley who jump from startup to startup, and I tried to educate them when it comes to this topic, telling them to absolutely make sure the equity conditions were reasonable. None of them has ever managed to change those on an offer, it always comes back as "It's the standard contract!", and they are in general strong performers.

In my experience, unless you are really an insanely high quality and senior hire, for a standard software engineer they're not going to do anything like that, since they have other candidates at the door who won't mention the equity pieces, you can't fight the system too easily.

I've personally been in an interview feedback loop, back when I was at a startup, where one of the founders (who was an interviewer) said: "This guy is technically really good, but asked too much about the details of the equity compensation, I think he might not be focused enough on our mission, let's pass".

Re: A Standard and Clean Series A Term Sheet

#73

Post by deanmoriarty »

nlh wrote: post #70
deanmoriarty wrote: post #46

I know this article focuses on founders, but I'd love to see something done in the industry for employees (especially early employees!) as well. One of the former companies I worked at never allowed early exercise and issued standard ISO with 90 day expiration upon leaving, which is unfortunately essentially the analogue of "standard and clean" when it comes to employee compensation. By the time I was ready to leave…

This sucks. Sorry to hear they did that to you and I’m glad you made out ahead of the game. A company I worked with had the opposite approach — they not only allowed for early exercise, they allowed for immediate exercise of all unvested shares with an 83(b) election (and converted the vesting schedule into a clawback schedule). AND they offered a bonus for the amount of the exercise price. So in effect, if you had $…

Well, this was just very refreshing to hear, and I'm happy it is the complete opposite of my personal experience when dealing with startups.

Re: A Standard and Clean Series A Term Sheet

#74

Post by entity345 »

jasonkwon wrote: post #65
entity345 wrote: post #60

Earlier quoted context omitted.

Well yes... It is a promise. Your reply suggests that it's not binding ('legally' binding, obviously).

It can be legally binding.

Ok... So how would you enforce it? It does not seem to form a contract.

I realise that this is mostly US law and that my limited knowledge relates to British law. So with that in mind, my understanding is that a simple promise is basically not legally enforceable.

Re: A Standard and Clean Series A Term Sheet

#75

Post by jasonkwon »

itistru wrote: post #66
akharris wrote: post #2

Jason and I are happy to answer any questions people have about this document: why we included the terms we did, how to think about using, etc.

Question: how did you think about giving pro-rata & information rights in this term sheet? It looks to me that the Other Rights & Matters section grants it to _all_ investors. Is that typical in your experience?

Major investors concept (investor has to have invested at least $X) is often added in the definitives. Longer term sheets just state a threshold dollar amount; shorter ones (like this one) just skip that definition and just add it in the definitives.

Re: A Standard and Clean Series A Term Sheet

#76

Post by 8ytecoder »

ig1 wrote: post #7

As a Series A investor who invests in startups outside of the Valley, it's hugely useful to have something like this (independent of us) that we can point to as to what's normal, especially for founders who don't necessarily have the network to help them. Founder's (and lawyers) who've never seen a term sheet before will often argue against standard terms (which no mainstream VC would move on) and on the flip-side, b…

How do we balance against an orthodoxy setting in? As a startup employee, it was unusual and impossible to ask for ISO options until recently. It's changing now. Why shouldn't there be terms in the agreement that felt perfectly reasonable a few years ago but seems unfair to the founder now?

A standard form should be a guidance. It shouldn't become an unquestionable text.

Re: A Standard and Clean Series A Term Sheet

#77

Post by ThrustVectoring »

deanmoriarty wrote: post #72
OiNG wrote: post #58

Earlier quoted context omitted.

it is, of course, complete BS that this is the norm. however, be aware that you can negotiate for early exercise or 10 year expiration prior to joining. even if the startup has never done anything like that prior, they will make it happen if they really want to hire you.

I have a deep network of friends in Silicon Valley who jump from startup to startup, and I tried to educate them when it comes to this topic, telling them to absolutely make sure the equity conditions were reasonable. None of them has ever managed to change those on an offer, it always comes back as "It's the standard contract!", and they are in general strong performers. In my experience, unless you are really an in…

The alternative to making sure the equity conditions are reasonable is to value them at $0 when deciding whether the compensation package is good enough to get you to join.

Re: A Standard and Clean Series A Term Sheet

#79

Post by deanmoriarty »

ThrustVectoring wrote: post #77
deanmoriarty wrote: post #72

Earlier quoted context omitted.

I have a deep network of friends in Silicon Valley who jump from startup to startup, and I tried to educate them when it comes to this topic, telling them to absolutely make sure the equity conditions were reasonable. None of them has ever managed to change those on an offer, it always comes back as "It's the standard contract!", and they are in general strong performers. In my experience, unless you are really an in…

The alternative to making sure the equity conditions are reasonable is to value them at $0 when deciding whether the compensation package is good enough to get you to join.

But how does that solve the problem I had, exactly? If you later find out that your equity is on paper worth a lot of money, and you want to pursue other opportunities, do you just leave the potential money behind because of an assumption you made several years before which turned out to be statistically much more unlikely than the current expected outcome?

When your startup is at series E and your options on paper are valued 7 figures and all the investment rounds were raised with clean terms (see linked post), I find it debatable to still hold on to the assumption that they should be valued at $0, like they were at Seed/Series A when you joined, and so be willing to walk away from them rather than dealing with painful vesting/exercising conditions that were initially set in your contact, no?

When you play the lottery, you expect $0 back, but you also expect that in the rare case you win you won't have to pay taxes on your win years before being able to get the prize, otherwise you just wouldn't play at all.

Re: A Standard and Clean Series A Term Sheet

#80

Post by robhunter »

mnemotronic wrote: post #36

I'm a software guy. Most of that sheet is a foreign language to me.

Are you starting a (venture-scale) company? Learning this language is critical.

Are you working for a startup? Becoming more familiar with this language is helpful - you can figure out whether the founders/executives know what they're doing or not.

Are you working for a large company? Learning this language will not provide much benefit for you IMO.

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