Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

A Standard and Clean Series A Term Sheet

blog.ycombinator.com

Post reply on HN
Print view View original

81–90 of 172 posts

Re: A Standard and Clean Series A Term Sheet

#81

Post by snowmaker »

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…

I'm very sorry that happened to you. 90 day exercise windows remain a huge issue in the industry, and one we've been fighting to fix for years now.

Fortunately, the fix is very simple: companies should just offer 10 year exercise windows. That prevents this scenario from happening to employees. We've written about this a bunch of times: https://dangelo.quora.com/10-Year-Exercise-Periods-Make-Sens... https://blog.samaltman.com/employee-equity https://triplebyte.com/blog/fixing-the-inequity-of-startup-e...

We hope that 10 year exercise windows will become the industry standard so that no one needs to worry about this anymore. Unfortunately, that hasn't happened yet. In the meantime, you can see a list of companies that have committed to them here: https://github.com/holman/extended-exercise-windows.

Re: A Standard and Clean Series A Term Sheet

#82

Post by itistru »

jasonkwon wrote: post #75
itistru wrote: post #66

Earlier quoted context omitted.

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.

I'm no fan of long term sheets, but IMO, this term sheet doesn't just punt that term to definitives; it gives me the expectation that all investors will receive "major investor" rights without dollar or ownership thresholds. Specifically, I feel that way because the "major investor" rights (ROFR, co-sale, pro-rata, info) are are in-line with anti-dilution and registration rights, which are typically afforded (in varying degrees) to smaller investors. Were I an existing investor or angel, the definitives adding a threshold would feel like a retrade of the term sheet.

Especially if the intent is to help unfamiliar founders & angels understand what's a "clean" or fair deal, I'd put in a vote that a v2 of this term sheet would clarify the applicability of rights to smaller investors, maybe with some "batteries included" guidance on that point.

Re: A Standard and Clean Series A Term Sheet

#84

Post by jhong »

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…

Don't trust founders who don't let their employees early exercise.

Re: A Standard and Clean Series A Term Sheet

#85

Post by paulsutter »

adventured wrote: post #6

Now switch the preferred shares to common shares and eliminate all liquidation preferences and you'd have something closer to a fair term sheet template. No young start-up should ever agree to preferred shares or any liquidity preferences. This is the next great battle for founders to win over venture investors. To push that risk back onto the investors where it should be instead of allowing the investors to unduly o…

Bad preferences happen when Founders are overoptimistic or focused on optics (like a postmoney of $1.00B). Even the standard 1x/nonparticipating reflects a mismatch in optimism. Few founders would accept the valuations that would come with an all-common investment, so it's rarely discussed.

Yes employees suffer along with the founders when bad preferences are chosen. But that's still the founders fault, not the investor.

Re: A Standard and Clean Series A Term Sheet

#87

Post by sethbannon »

entity345 wrote: post #74
jasonkwon wrote: post #65

Earlier quoted context omitted.

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.

It can be enforced with a lawsuit like this, when an investor doesn't care as much about their reputation with founders: https://www.bloomberg.com/news/articles/2018-04-25/crypto-bi...

Re: A Standard and Clean Series A Term Sheet

#88

Post by vxNsr »

robhunter wrote: post #80
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.

If the answer to either of the first two questions is yes, where would I go to learn the jargon? (I do know about google, I'm just hoping there's a good resource that has everything so I don't need to search individual terms).

Re: A Standard and Clean Series A Term Sheet

#89

Post by pge »

pbiggar wrote: post #12
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.

My reading is that this includes a pre-money option pool (aka the "option pool shuffle": http://venturehacks.com/articles/option-pool-shuffle ), which while standard feels dirty. Any thoughts on this?

One thing I do in all my term sheets that might be a useful addition is to include a summary cap table showing the founders how much they own and our fund owns post-funding. That pre-empts any confusion over the impact of an option pool increase on each party.

Re: A Standard and Clean Series A Term Sheet

#90

Post by adventured »

tptacek wrote: post #68
adventured wrote: post #6

Now switch the preferred shares to common shares and eliminate all liquidation preferences and you'd have something closer to a fair term sheet template. No young start-up should ever agree to preferred shares or any liquidity preferences. This is the next great battle for founders to win over venture investors. To push that risk back onto the investors where it should be instead of allowing the investors to unduly o…

How does a VC deal without at least a 1x liquidation preference work? The founders have taken $X from investors and control the board. What prevents them from selling the company and pocketing their share of $X? In what way is a 1X liquidation preference unfair?

The broader point is that investors should eat the same dog food as the founders and early employees, including when it comes to common shares and no liquidity preferences. The fairness point you asked about includes removing preferred shares, you're splitting it as though I was only talking narrowly about an issue of a 1x preference. I fundamentally disagree with start-up investors receiving preferred shares as a norm.

I think YC should take the lead in trying to strip liquidity preferences from the industry. They should become non-standard in most term sheets. Ideally they advocate up the chain further by leveraging their considerable influence to water down or eliminate liquidity preference whenever possible. YC has been a founder-friendly venture firm from the beginning, I believe one of the best pro-founder fights for them to pick is to work toward ending the standardization of liquidity preferences. It's currently backwards, liquidity preferences should be rare.

Post reply on HN