Pre-money. Just Say No: VC terms that can really hurt. Guest Author · December 2nd, 2009 Thanks to Atlas Venture for supporting Venture Hacks this month. This post is by Fred Destin, one of Atlas’ general partners. If you like it, check out Fred’s blog and tweets @fdestin. And if you want an intro to Atlas, send me an email. I’ll put you in touch if there’s a fit. Thanks. – Nivi If you believe the blogosphere chatter, the entrepreneur-VC relationship seems strained like at no time in the past. I see a lot of misguided commentary out there focused on the wrong issues, such as “how can you ask for liquidation preferences and call yourself entrepreneur friendly?” What I wanted to do here instead is focus on a few of the clauses that entrepreneurs should absolutely avoid; the wrong tradeoffs which later expose them to really “losing” their company.
Now we own you: Full ratchet anti-dilution Anti-dilution is usually mild. This gets nasty when serious money has been raised. Your ownership just evaporated. TheFunded term sheet cdixon.org – chris dixon's blog. Options on early stage companies cdixon.org – chris dixon's. Here’s the really good news for the web economy over the next decade. Consumers are spending more and more time online, yet only about 10% of all advertising dollars are spent there. Let’s assume that, over time, ad spending on a medium becomes roughly proportional to the time consumers spend using that medium.
I doubt there are any technologists reading this blog who doubt that in five years most people in industrialized countries will spend 50% or more of their “media time” on the web. This means there are hundreds of billions of ad revenues waiting to move to the web. Advertising is usually divided into two categories: direct-response and brand advertising. It is therefore very likely that most of this new ad spending will be brand advertising. Right now there are lots of inhibitors to brand advertising dollars flowing onto the web. But economic logic suggests these problems will be figured out, because advertisers have no choice but to go where the consumers are. Ideal first round funding terms cdixon.org – chris dixon's.
Every system built by a single institution has points of failure that can bring the entire system down. Even in organizations that have tried hard for internal redundancy – for example, Google and Amazon have extremely distributed infrastructures – there will always be system-wide shared components, architectures, or assumptions that are flawed.
The only way to guarantee there aren’t is to set up completely separate, competing organizations – in other words, new institutions. This insight has practical implications when building internet services. One thing I learned from my Hunch co-founder Tom Pinckney is, if you really care about having a reliable website, always host your servers at two data centers, owned by different companies, on networks owned by different companies, on separate power grids, and so forth. Our last company, SiteAdvisor, handled billions of requests per hour but never went down when the institutions we depended on went down – which was surprisingly often. Mark Pincus Blog: finally! getting to a common term sheet on ser. Mark Pincus Founder, Chief Executive Officer & Chief Product Officer Mark is the founder, CEO and chief product officer of Zynga.
He founded the company in 2007 with a mission of connecting the world through games, and in founding zynga.org, he also believes that games can do good. On his way to creating Zynga, Mark started three companies. In 2003, he launched Tribe.net, one of the first social networks. Mark graduated summa cum laude from University of Pennsylvania’s Wharton School of Business and earned an MBA from Harvard Business School.
The Funded Publishes Ideal First Round Term Sheet. Adeo Ressi, founder of The Funded, a site where people rate venture capitalists and the Founder Institute, an incubator of sorts, has long ranted about what he calls “the atrocities of investors.” Now, a lot of people, including prominent angel investors and venture capitalists, are starting to listen to him. Tomorrow Ressi will announce a new, basic term sheet for use by investors and founders. The goal is to protect founders and reduce legal fees, which average $50,000 or more per venture round. Earlier this month angel investor and Hunch founder Chris Dixon wrote a blog post requesting that venture capitalists start to use standard, founder-friendly deal terms for venture rounds.
He set out the terms he proposed in that post. Investor Fred Wilson agreed with Dixon. Now Ressi has published an actual term sheet that investors and founders can use that reflect those basic terms. What this means: VCs try to increase returns by asking for large liquidation preferences. Fred Wilson - The Ideal First Round Term Sheet. Chris Dixon is killing it on his blog right now. My post on saturday was inspired by a blog post of his and I am going to repeat that today. Chris laid out the ideal set of first round terms and I agree with them. What's interesting is that Chris is a serial entrepreneur and I am a VC. And yet we agree on what the term sheet should say. That's progress. In fact, Chris' favorite law firm, Gunderson, has put together a term sheet and a set of documents that we've been using lately to do a "quick closing". We are in the process of closing our first investment with the Gunderson docs.
There are multiple benefits to doing it this way. It certainly doesn't hurt that the company's counsel, Gunderson, is a firm that we have used on multiple transactions as well. I'd like to see this practice become standard in our industry. I'm really pleased to see that entrepreneurs, VCs, and the lawyers are all coming together on this issue.