Startup Commons a global nonprofit association dedicated to making startup funding more understandable

Focus item two: High level sets of terms for different categories

by: Valto

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In this post I will focus on the second item, in our three point action list. List of typical terms.

This item is the "hottest" item online, when it comes to area that we are looking to cover with Startup Commons. Not sure if Y-combinator is "the one" that started this momentum, but they for sure are one of the first ones to "get the big wheel turning" in this subject, when they "open sourced" their Funding Legal Docs for anyone to use.

Our background info in this subject

While working in this subject at Grow VC, we naturally started by searching multiple sources for "free to use" term sheets, that we could just link to or have available for users within the service - that seemed like a simple and usable idea.

However after having a talk with our own legal counsel, we came to conclusion that it is totally possible that those can do more harm than good for the users. Since just one version doesn't fit to variable needs of different startups in random stages with multiple variables that go into each particular deal.

After this conclusion, we started to think for alternative solution to this problem, that eventually lead to "Agreeing tool" idea. A solution that is our focus list tem number three. The purpose of the "Agreeing tool" is to make logistics and process of "agreeing" easier to manage and more efficient. In future post I will explain this in more detail.

At this point we were quite happy with our solution, so we continued our developments in the other areas of our service and this was put to side. After some time passed this topic came up again and after reading one of the comments in Mark Suster's blog, Both Sides of The Table, in one of Marks replies, he was able to quickly and very shortly categorise one type of startup profile. After thinking about that for a while, we came up with the idea to identify and categorize startups in different stages, that would make it easier and faster to understand what type of startup would be in question (item one in our focus list), both for entrepreneurs and potential investors, before asking a single question.

Since coming up with this idea, suddenly the idea about "standard term sheet" started to look appealing again - because now, instead of "one size fits all" we could build "standard term sheets" for each of the specified category.

List of typical terms

So the focus item number two for Startup Commons is about building the "list of typical terms" to each category. So, instead of doing these as "agreement level", we focus only to most critical/typical set of the terms and limit the number of items to level that is "enough", keeping these as "communication items".

Now that we have covered identifying with categorizing and set number of matching typical terms, how exactly are these going to help?

As it's well known, often the fist time a startup entrepreneur sees any meaningful term sheet, it's most likely going to happen after meeting with an investor that is suggesting the terms. And typically there is no easy (or cost effective) way for entrepreneur to valuate these terms.

That's why we want to build these high level terms to match different type of startup profiles. So entrepreneurs can study and learn what type of terms are expected for different type of startup in different level, after being first identified in right category. Also, by enabling open communications and commenting about these categories and terms, both the investors and entrepreneurs of different type can communicate how do they feel about these "in general".

With your support, Startup Commons as independent and non-profit "third party" organization, we will develop these terms as fair as possible to all parties. And as it is written in our strategy, we hope to get the best and the most experienced people as possible, to help us build these terms, from investors and entrepreneurs with assistance from skilled lawyers in this field. Keeping in mind that we are not doing "full set of terms" and not in "Agreement level".

So why are we not trying to go all the way and do these as "agreements"?

We want to be realistic with our approach and build overall model that is "good enough", so that it can be really helpful to big audience and help save a lot of time overall, without trying to go all the way to 100% with this model. If even 50% of the process could be helped with these, that alone is already a BIG improvement in overall speed and cost, compared to ways of doing things today.

And as our focus item number three, will be the power tool to also help closing that remaining 50% faster, with assistance of an experienced and professional legal adviser - that should be plenty.

What do you think, are we on the right track? - Please share your comments below!

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About Valto

He is a serial entrepreneur who has started several companies across Europe and the US in the web and mobile fields. Forward thinking and always seeking the next big web and mobile success, as a serial entrepreneur and startup advisor, Valto got fed up with the lack of transparency and openness in the startup funding process. He aims to bring a better, fairer environment for technology startups seeking funding. Valto is currently located in Finland.