Seedsummit Term Sheet Initiative Workshop and Translations

About a month ago, Seedsummit announced the start of our termsheet initiative by bringing together 21 investors around a set of guideline terms with the purpose of providing greater transparency to European Founders about the fundraising process. The hope continues to be that this transparency creates more meaningful dialogues between founders and investors when fundraising discussions occur.

To further catalyze this initiative, Seedsummit will be holding a termsheet workshop on Sep 20th open to all founders that are interested in raising funds soon. The aim is to have a walkthrough of all the terms as well as to have an open Q&A environment. Legal Firms Orrick and Brown Rudnick will be present to answer any questions you may have.

We’d also like to take this opportunity to mention that we’ve had several new supporting partners join the termsheet initiative: DuMont Venture, ISAI, Yandex, Creandum, Bertelsmann Digital Media Investments, as well as various Angels.

Lastly, we’re excited to announce that thanks to Osborne Clarke and Christian Musfeldt in Germany and Maples & Calder in Ireland, we’ve been able to get the original documents translated for German and Irish jurisdictions.

Although we acknowledge no one has the right answers for many of the questions that naturally arise as part of an initiative such as this one, we have been reassured by the positive feedback we have received from founders. We hope to continue to be a conduit for discussion between founders and investors.

Below is some of the feedback we have received:

— “Having a standardized term-sheet is great step forward for the European start-up world. Any term sheet contains many complex legal constructs and for a first time entrepreneur negotiating these with an experienced VC the knowledge and experience gap means the odds are against the entrepreneur. A standardized term-sheet takes the industry a step closer towards a level playing field as even inexperienced founders will easily be able spot deviations from the standard and know where to focus their attention.” – Alexander Ljung, Soundcloud

— “This is a great initiative. VCs can sometimes have an unfair information advantage over first-time entrepreneurs—particularly if there is no intermediary involved. Initiatives like this help to redress that imbalance. The simplest way to use the seedsummit template docs would simply be to do a compare-and-contrast against any termsheet you receive. Don’t feel shy about asking your potential investor to explain any and all variation – there may be excellent reasons for each variation, but make sure you have heard and understood them. Taking funding is like getting married – it’s a long term commitment which is expensive to reverse. Make sure you never sign any investment agreement which you don’t fully and completely understand. Sounding stupid is less of a risk than signing something you don’t understand. And you’d be surprised how many investors would struggle to explain succinctly the difference between broad- and narrow-based weighted-average anti-dilution protection! There are a couple of elements you might see which the seedsummit template document doesn’t include – a cap on liquidation preference, for instance. It’s also important when you’re talking about option pools to know whether they’re being carved out of the ‘pre-money’ or ‘post-money’ cap structure. Those points aside, the template docs give a good sense of the sort of terms which an early stage technology start-up might expect to receive from a reputable investment firm.” – Greg Marsh, One Fine Stay

— “The Seed Summit documentation initiative is a very welcome initiative for entrepreneurs, especially at the very early stage. Neither entrepreneur nor investor want to spend a disproportionate share of limited investments on legal fees, but founders and investors focused on long-term value creation do not want unfair deal terms to skew long term economics. What Carlos and the Seed Summit investor base created serves as a first but major step towards transparency It is not meant to be completely prescriptive, but it creates efficiency in narrowing down what is standard and what is not and enables open community debate outside of the bilateral and often under-informed dialogue of founder and investor.” – Alex Hoye, Latitude Digital Marketing

— {Translated from the original in Spanish} “The publication of this document is a great help to all those entrepreneurs who have no experience using term sheets. Although the terms are still adjusted as needed for each investment, these guidelines give entrepreneurs a good idea of what is considered “common practice” for a term sheet. Another advantage is that it will also help reduce legal costs and accelerate the entire investment process. Especially in Spain there is very little knowledge about this subject, and many investors can dictate the terms as they see fit and that entrepreneurs are not able to compare different deals with what is considered common practice in the market. Even the best MBA candidates (all countries) have this problem, I myself I often see among my students in the IE.” – Martin Varsavsky, FON

— “The Seedsummit initiative to create a investor documentation template is to be congratulated, we have found it to be very helpful.”   – Paul Flanagan, Tequila Mobile

— “The Seedsummit Termsheet is a great tool not only for startups raising money from the investors who use it, but for any other startup raising seed money in Europe. It provides a benchmark which will make it very difficult for investors to negotiate the draconian terms that have popped up far too frequently in recent years. The terms of your first investment set the precedent for investors over the rest of your company’s life so it’s critical to get these right.” – David Langer, Groupspaces