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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

#151

Post by entity345 »

hobbyjogger wrote: post #136
entity345 wrote: post #95

Earlier quoted context omitted.

I'm sorry but that does not answer my question at all. It's quite obvious that a legal dispute may be settled in court. We do not know the details of the case you quoted so it's difficult to comment. I'm asking specifically about the template that is posted here because it looks like a simple promise and, as mentioned, these have no value in many jurisdictions. I suppose I'm asking how it works in Delaware, basically…

> In many jurisdictions of the United States, promissory estoppel is an alternative to consideration as a basis for enforcing a promise. It is also sometimes called detrimental reliance. Wiki: https://en.wikipedia.org/wiki/Estoppel#Promissory_estoppel_2 PDF: https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?refe...

Yes I know estoppel.

But in this case?

Re: A Standard and Clean Series A Term Sheet

#154

Post by ascar »

rsweeney21 wrote: post #123

Former founder here. I wish I had had this when I was raising my series A. I lost control of the board at my series A when the VC said that a 2-2-1 structure would be better for everyone. 13 months later, I was fired from the company I had started. The risks are real. Had I known what a standard, clean series A term sheet looked like, I could have just pointed to this term sheet on ycombinator.com and said - "Make it…

What's a 2-2-1 structure and how did it result in you getting fired?

Edit: just saw it's in the article

> The way in which founders most often lose control at the Series A is with a 2-2-1 board structure, i.e. 2 founders, 2 investors and an independent board member. The loss of board control is most significant because it means the founders can be fired from their own company.

Re: A Standard and Clean Series A Term Sheet

#155

Post by tosh »

ericd wrote: post #145
tosh wrote: post #30

Earlier quoted context omitted.

iirc the SAFE doesn’t cover vesting, information rights and control rights (I guess this is because typically companies that YC invests in are set up with something like Stripe Atlas or similar?) In many European hubs the typical term sheets for seed financing are provided by Angels or seed stage VCs and typically aren’t as founder friendly as in the US. Having more information/a recommended seed term sheet from YCom…

AFAICT, the norm with SAFEs is that they're very hands off in terms of company operations, at least in SV.

ty for the clarification ericd

Re: A Standard and Clean Series A Term Sheet

#157

Post by jasonkwon »

HoyaSaxa wrote: post #139

This term sheet template is very investor friendly primarily because of the lack of detail. The Company has very little leverage after a term sheet is signed especially given a standard no-shop provision. You want to reduce the number of items that need to be negotiated later in the process as much as possible. This not only reduces the likelihood of having to agree to a less than favorable term that was not addresse…

Theoretically this would appear to be true.

In practice, the firms that give 1-pagers don't really try to pull a bait and switch like that. They offer the 1-pager so they can close quickly, not so they can get quickly into the no shop to drive onerous terms. Could a firm consciously adopt that strategy? Sure, but it wouldn't last very long because people talk to each other.

Also, even the 1-pager goes into detail on liquidation preference, veto rights, board composition, drag-along and founder vesting. These are the items that get negotiated a lot or are otherwise really important to know before signing up.

As mentioned elsewhere, this exercise was descriptive, not prescriptive. Some of the founder friendliest investors use term sheets that look similar to this. Some of the unfriendliest investors still send 10 page term sheets.

Re: A Standard and Clean Series A Term Sheet

#158

Post by jasonkwon »

55555 wrote: post #142

Can someone please help me understand what common re-vesting schedules are for founders? Like, if I raise seed money, surely I'll have to agree to a reasonable 4-year vesting schedule. But then if I raise a series A, B, and C, do I have to agree to new vesting schedules at each raise? Will I then not fully vest until 4 years after my series C? Do I lose all my vested shares at each raise? On the one hand re-vesting s…

Re-vesting schedules are all over the map.

Some amount of re-vesting is often required at Series A, but it largely has to do with how vested the founders already are. If for example they've been working on the company for only a year, the existing vesting schedule will probably be left alone. On the other hand, if they've been working on the company for multiple years and are close to fully vested at Series A, it's almost guaranteed that the Series A investor will ask the founder to re-vest some amount of shares (for the reason you describe).

Re-vesting generally does not show up again after the Series A.

If you get fired before you fully vest, whether you leave with the equity you have or all your equity is something you can negotiate as part of the vesting terms.

Re: A Standard and Clean Series A Term Sheet

#159

Post by jasonkwon »

anotherfounder wrote: post #111
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.

I was under the impression that more and more founders (and even investors) are speaking out against the idea of legal fees paid by the founders. Is that only at the seed stage and acceptable at Series A?

The term sheet we posted is just meant to show what a pretty good term sheet looks like from a good investor. The investor having its legal fees reimbursed by the company is something that shows up all the time. Sure, you can negotiate that if you want. You can negotiate other things too, or choose not to. The way this usually plays out though is that unless you have the kind of leverage that lets you basically write your own term sheet, you have to prioritize, and most people prioritize getting what they want on valuation, control, clean terms, etc. before making sure to shift $30K in legal fees back to the investor.

Re: A Standard and Clean Series A Term Sheet

#160

Post by jasonkwon »

hobbyjogger wrote: post #134
pedalpete wrote: post #108

Earlier quoted context omitted.

I was surprised by the % being included as I figured that would be decided by the board at the time a divindend is approved. I have no idea why a % which would be defined before knowing the details of the companies financial situation. I wonder if this is more of a protection against the board deciding on a dividend when it is in the best interest in the near term for the company to keep money in the bank. So definin…

The dividend provision just says that the common won't get a dividend unless the preferred has already received their 6% (per year). It doesn't mean that you couldn't issue the preferred a smaller dividend--that would just count toward the 6% but still wouldn't allow the common to get a dividend until the remainder is paid out to the preferred. It's relatively rare for venture backed startups to issue ordinary course…

Yes, this.
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