The Terms on a Term Sheet

One of the things we try to do at WLV is be very friendly to entrepreneurs.  A lot of people say that, but we really try.  For example, we try to give really honest feedback.  When some VC firms pass they just say, “not for us” or give you some vague answer.  We try to tell you exactly why we passed.  The entrepreneur may not hear, or like the answer.

The other thing we try to do is get to a really fast no.  It doesn’t do any good for anyone to just be out there in the ether. Fast no’s are good for entrepreneurs because they don’t waste their time.

I was reading about Snapchat’s initial fundraising round.  Lightspeed put in terms that became very difficult for the founders.  Snap was unable to raise from certain firms in later rounds because of it, and it drove down valuation.  The terms were great for the VC.  A $485k investment is going to turn out to be $1B.

Evan Spiegel said, “If a VC tells you the terms are standard, they either don’t understand them or they know that they are friendly to the VC.”

At seed and Series A, it’s really important for entrepreneurs to understand the terms on a term sheet.  That’s why it’s good to have a lawyer that has done some VC work on your side of the table.  Another thing you can do is get the book Venture Deals and read it.  There are all sorts of little terms that seem innocuous but can hurt in later rounds.

It’s business, but it’s a relationship too.  You want to make sure everyone is pulling with the same rope when you do a deal.

Having clean term sheets without a lot of junked up stuff in them at seed is very important.

  • awaldstein

    Nice.

    It is never that simple honestly as you know.

    In a note everything is negotiable.

    In a priced round the lead drives the process.

    I applaud you your transparency but it is simply not that simple in my experience.