Ideal first round funding terms

My last 2 posts were about things to avoid, so I thought it might be helpful to follow up with something more positive.  Having been part of or observed about 50 early stage deals, I have come to believe there is a clearly dominant set of deal terms.   Here they are:

- Investors get either common stock or 1x non-participating preferred stock.  Anything more than that (participating preferred, multiple liquidation preferences) divide incentives of investors and the entrepreneurs.  Also, this sort of crud tends to get amplified in follow on rounds.

- Pro rata rights for investors.   Not super pro rata rights (explaining why this new trendy term is a bad idea requires a separate blog post).  This means basically that investors have the right to put more money in follow on rounds.  This should include all investors – including small angels when they are investing alongside big VCs.  There are two reasons this term is important 1) it seems fair that investors have the option to reinvest in good companies – they took a risk at the early stage after all 2) in certain situations it lets investors “protect” their investments from possible valuation manipulation (this has never happened to me but more experienced investors tell me horror stories about stuff that went on in the last downturn – 2001-2004).

- Founder vesting w/ acceleration on change of control.  I talk about this in detail here.   If your lawyer tries to talk you out of founder vesting (as some seem to be doing lately), I suggest you get a new lawyer.

- This stuff is all so standard that there is no reason you should pay more than $10K for the financing (including both sides).  I personally use Gunderson and think they are great.   Whoever you choose, I strongly recommend you go with a “standard” startup lawfirm (Gunderson, Wilson Sonsini, Fenwick etc).   I tried going with a non-standard one once and the results were disastrous.  Also, when you go with a standard firm and get their standard docs it can expedite later rounds as VCs are familiar with them.

- A board consisting of 1 investor, 1 management and 1 mutually agreed upon independent director.  (Or 2 VCs, 2 mgmt and 1 indy).  As an entrepreneur, the way I think of this is if both my investors and an independent director who I approved want to fire me, I must be doing a pretty crappy job and deserve it.

- Founder salaries – these should be “subsistence” level and no more.  If the founders are wealthy, the number should be zero.  If they aren’t, it should be whatever lets them not worry about money but not save any.  This is very, very important.  Peter Thiel said it best here.  (I would actually go further and say this should be true of all employees at all non-profitable startups – but that is a longer topic).

- If small angels are investing alongside big VCs, they should get all the same economic rights as the VCs but no control rights.  Economics rights means share price, any warrants if there are any (hopefully there aren’t), and pro-rata rights.  Control rights means things like the right to block later financings, selling the company etc.  I once had to track down a tiny investor in the mountains of Italy to get a signature.  It’s a real pain and unnecessary.

- Option pool – normally 10-20%.  This comes out of the pre-money so founders should be aware that the number is very important in terms of their dilution.  Ideally the % should be based on a hiring plan and not just a deal point.   (Side note to entrepreneurs – whenever you want to debate something with a VC, frame it in operational terms since it’s hard for them to argue with that).

- All the other stuff (registration rights, dividends etc) should be standard NVCA terms.

- Valuation & amount- My preference is to keep all terms as above and only negotiate over 2 things – valuation and amount raised.  The amount raised should be enough to hit whatever milestones you think will get the company further financing, plus some fudge factor of, say, 50% because things always take longer and cost more than you think.  The valuation is obviously a matter of market conditions, how competitive the deal is etc.   One thing I would say is if you expect to raise more money (and you should expect to), make sure your post-money valuation is one that you will be able to “beat” in your next round.  There is nothing more dilutive and morale crushing than a down round.

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View Comments

#1 Eric Knisley on 08.16.09 at 10:42 am

I’d like to hear more of your ideas regarding compensation for founders and employees of start-ups. I’ve been involved in a number of start-ups, and while I’ve had a great time and some amazing experiences, I’ve also piled up quite a few worthless stock options. Is there, do you think, an ideal way to balance compensation against incentive for early start-ups?

#2 fred wilson on 08.16.09 at 10:48 am

i agree with all of this chris. however, i think its fair for investors to get preferred stock, but plain vanilla preferred.

i really dislike super pro-rata rights. i had a discussion with another VC about that yesterday.

it’s a really bad idea. i think i’ll post about it

fred

#3 chris on 08.16.09 at 10:58 am

I agree investors putting cash in should get (1x non participating) preferred stock. I think it’s fair. My main point was just against more than that. As an angel I’d do common but I think institutions are well within their rights to ask for preferred.

#4 Twitted by PhilipHotchkiss on 08.16.09 at 12:29 pm

[...] This post was Twitted by PhilipHotchkiss [...]

#5 David Cancel on 08.16.09 at 1:46 pm

Fantastic post, generally agree with all of it.

Two sticking points, 1) acceleration for non-founders, 2) on the founders pay I agree but what happens when a startup goes years and several rounds before an acquistion. At some point ramen gets old and you want to prevent founders from leaving. Or do you believe startups should die before getting to that point?

Would like your thoughts on the above.

#6 chris on 08.16.09 at 3:00 pm

Thanks, David. Re your first point – wouldn’t you agree on at least double trigger for employees? Seems crazy to me that an employee can work for years for equity and then get fired right after an acquisition and not get fully vested. Single trigger is much more questionable.

I hadn’t thought about your second point. When I think about startups I know in that position either the founders have left or the companies are break even to mildly profitable and the founders are taking better salaries – which at that point seems fair. I guess you’d have to take it case by case…?

#7 Chris Yeh on 08.17.09 at 6:14 am

As a serial entrepreneur and investor, I agree with most of what you recommend. The two points on which I differ are as follows:

1) I don’t you can ever do a deal where all the investors get is common stock. That is as dangerous a misalignment as any; the day after the closing, entrepreneurs could liquidate the company and pocket 2/3 of the financing.

2) I agree on subsistence-level (e.g. $40K) salaries for seed round deals, but once a company raises a real A (e.g. $3 million) or is profitable, you should pay something closer to market.

a) It’s unfair to ask founders to essentially lose money for an extended period of time.

b) The below-market salaries will distort your view of the company’s profitability

c) Founders who actually have families will be priced out of the startup game. I have 2 small children, which means for cash flow purposes, $40K isn’t subsistence, it’s a cash hemorrhage.

Don’t get me wrong; subsistence salaries are great for seed stage deals, and I did the same when I was at Ustream, but it was always intended as a super short-term (3-6 months) situation.

#8 Tai Hsia on 08.17.09 at 6:23 am

Great post, Chris.

Re: the ideal startup board, I think for early startups, it may not make sense to have two out of three directors who are not involved in daily operations. I completely agree that founders and team leaders who do crappy jobs do deserve to get fired but am more concerned about too much bureaucracy, politics, and chefs in the kitchen early on, when the startup needs to be dynamic and nimble.

Cheers,
Tai

#9 Brandon K on 08.17.09 at 6:33 am

Great post. What’s the average dividend you see?

#10 Confluence: Lunatech Ventures on 08.17.09 at 6:33 am

Ideal investment terms…

From Chris Dixon:…

#11 Kindra T. on 08.17.09 at 6:53 am

Great post, thanks to Fred Wilson for linking to it. The angel group I work uses boilerplate templates whenever possible to minimize costs and speed time to close. We are currently revisiting the templates in our continual effort to build better, longer term relationships on both sides of the aisles (companies and VCs). Would be great if all parties could get on board with thinking like that of the above.

#12 Mark Essel on 08.17.09 at 7:38 am

I think I understand the gist of what you are describing. And from my startup centric vision they look like a fair and fast way to do business. Can a great business philosophy like this become adopted by the VC community?
I certainly hope so.

Any interest in a potential board member seat in a pre-corporate startup Chris? The initial thrust is in contextual advertising driven by user social media, with the user value point being 2-way personalized passive search (both real time and through standard search engines).

It’s been challenging finding potential team members with zero dollars but it turns out relentless passion helps. I’ve got 2 web dev savy folks helping and a business strategy friend, an we’re discussing the pattern matching/prediction problem with the ensemble winning Netflix team shortly (just gotta pick a good skype time)

#13 cdixon.org / Ideal first round funding terms « Netcrema - creme de la social news via digg + delicious + stumpleupon + reddit on 08.17.09 at 8:16 am

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#14 Terms, Terms, and First Round Terms on 08.17.09 at 8:27 am

[...] couldn’t agree more.  Chris Dixon wrote a post titled Ideal First Round Funding Terms that Fred points to.  I agree with almost everything Chris says, and especially agree [...]

#15 Dean Collins on 08.17.09 at 8:59 am

Hi Kindra,

A simple boiler plate template for most documents makes good sense.

I was planning on setting up a website for startups to access these boilerplate documents (not just capital raising but NDAs, Development/engagement contracts etc etc)

If you want to email any boilerplate documents you have the right to ‘open source’ to submission@NYalpha.com i’ll add them to the library.

Cheers,
Dean

#16 Bob on 08.17.09 at 9:31 am

A few of these are slanted towards the VC.

My guess is Chris doesn’t work at “subsistence” levels. Neither should an entrepreneur. If you can work at subsistence levels, then you should reconsider funding.

Anything considerably less than market salary should result in increased founder vesting.

I have never seen the option pool taken out of the pre-money, and it doesn’t make sense. These are used to recruit new executives down the road to increase the value of the company. These should not be dilutive only to the founders.

#17 Vladimir Oane on 08.17.09 at 9:56 am

I am surprised other terms can exist. All seem reasonable to me and my company is fortunate enough to have similar terms from our investors. One question though? What is the difference between founders vesting and good/bad leaving terms (if you leave in the first year you loose almost all your equity,a big chunk in the second year and so on). I guess is the same idea. Right?

#18 Glenn Kelman on 08.17.09 at 9:59 am

This is a great post. My only issue is with the percentage allocated to the pool: 10% – 20% may be standard — I would argue it is 15% – 20% at least — but if 10% – 20% is the standard, the standard is low. Imagine a 50-person company selling after three years for $50M; this isn’t a fantastic outcome but it isn’t an absolute dog either. The founders get 25%, or $12.5M; the 50 employees get 15% (the midpoint of your suggested range), which is $7.5M, or $150,000 each. If the first three employees get $1M and you have two execs who get around that too, then the other 45 get around $50K on average. That doesn’t seem outrageous to me, but it does seem a little low, especially if people are working at subsistence levels of pay. Over three years at that level, an employee would give up more than $50K in cash compensation. Maybe my mistake is in assuming that 5 people besides the founders make a million, but I do think that the early, core engineering team thinks in those terms, and that early-stage execs — the guy running sales for instance — do too.

#19 First Round Funding Terms and Founder Vesting « Both Sides of the Table on 08.17.09 at 10:14 am

[...] need to simplify funding terms and documents.  The meme was kicked off by Chris Dixon with this post saying that term sheets need to be simplified and align investor / founder interests.  That [...]

#20 chris dixon on 08.17.09 at 10:40 am

Bob – Actually I do work for subsistence salary – see: http://www.avc.com/a_vc/2009/08/the-ideal-first-round-term-sheet.html#comment-14960700

I really believe this stuff.

#21 Dave on 08.17.09 at 11:13 am

Chris, greatly appreciate the insight and excellent post and appreciate the founder vesting post as well. -Dave

#22 Ensight – Jeremy Wright » The Next Step in Standardized Term Sheets: VC Declarations on 08.17.09 at 11:50 am

[...] There has been a lot of fantastic chatter over the last few weeks about standardized funding docs. I caught wind of it from (no surprise) Brad and Fred’s fantastic posts on the VC side, which led to Chris Dixon’s also amazing post on the entrepreneur side of the equation. [...]

#23 CloudAve on 08.17.09 at 12:17 pm

First Round Funding Terms and Founder Vesting…

#24 Josh Morgan on 08.17.09 at 12:33 pm

Techstars has several boilerplate docs online if people want to check them out to get a taste for what everyone is talking about.

http://www.techstars.org/2009/02/07/techstars-model-seed-funding-documents/

#25 jasonspalace on 08.17.09 at 1:14 pm

great stuff all round and thx for the content on founder vesting, especially the parts about acceleration on change of control, really puts the future into perspective.

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#29 John on 08.17.09 at 2:19 pm

Ever heard of a company retaining an S-Corp status post seed funding? We are in the process of seed funding, and are being pushed to go to C-Corp, but I hate C-Corps and would like to avoid such until a point where we would need to be for preferred stock or foreign investor reasons.

#30 Jeffrey J Davis on 08.17.09 at 3:16 pm

Good post and very helpful info for potential early round founders.

My only inputs are that I tend to think option pool vesting for founders and senior leadership team should all trigger on change of control, but that normal vesting should have a portion time based and a portion performance based. Having an additional vesting carrot hanging out there in year 2 or 3 for hitting revenue or EBITDA goals can be a great motivator for a management team.

#31 Speaker City » Links for August 17th on 08.17.09 at 4:01 pm

[...] cdixon.org / Ideal first round funding terms – I have come to believe there is a clearly dominant set of deal terms. Here they are: [...]

#32 chris on 08.17.09 at 4:21 pm

John – I am not an expert on this but I think most institutional investors basically insist that you become a C-corp because their investors (LPs) require it because they don’t want to be liable for taxes on profits. Most individual investors don’t care and might even prefer a pass-through entity (S corp or LLC).

#33 Matt Blumberg on 08.17.09 at 5:31 pm

I’m surprised you think all startup employees should have subsistence salaries. I guess it depends what you mean by that, but doesn’t that cut off a pretty big swath of talent?

#34 chris on 08.17.09 at 5:53 pm

Hey matt – Well, first let me clarify what I mean by subsistence salaries. If someone is a single parent with 2 kids and lives in a major city and doesn’t have savings, subsistence to me might be >$100K. The point is enough to not have them spend time counting pennies but little enough that they make any “real” money on the equity.

Also I’m sure it varies by stage. I am thinking particularly at the seed stage, which is what I’m most familiar with. I’d expect at your stage you hire sales people etc at market cash comp prices and I expect that’s the best strategy.

#35 Andy Freeman on 08.17.09 at 8:21 pm

> Hey matt – Well, first let me clarify what I mean by subsistence salaries.

Shouldn’t you also clarify what you mean by “employee”?

If we’re talking about someone who has a significant equity stake (including options), subsistence salary makes sense. However, if we’re talking about someone who has >1%, it’s insane.

Let’s do the math. Most of these companies will fail. Of the ones that don’t, the vast majority will go for less than $100M. If the company “goes”, that’s $1M to our 1%er. Over five years, that’s subsistence $200k/year. However, in most cases, it’s $subsistence for five years. The expected value calculation is between those two end-points, but closer to subsistence than $200k.

There’s a Dilbert about a company that thinks that it can find good engineers who can’t compare salaries.

How many good engineers do you run into who won’t do an expected value calculation?

#36 Tom Klein on 08.17.09 at 8:57 pm

Nice post by Chris, but I have a few important tweaks:

1. Find a start-up lawyer, rather than a start-up law firm. Even at the firms Chris mentions, there are attorneys insensitive to start-up concerns. I practiced at Wilson Sonsini for 19.5 years before moving to Greenberg Traurig’s Silicon Valley office. GT’s Silicon Valley office has excellent start-up attorneys.
2. Cost. I believe that the quotes you will receive for Series A rounds will exceed Chris’ estimate of $10K for both sides. However, there are ways to keep the fees modest. One way is to limit diligence and disclosures. If the company is a raw start-up, then there should not be much if any diligence. If the company has an operating history, has patents or applications, or has spun off from another company, then there may some form of diligence investigation. In life science transactions, it is typical for investors to do a “freedom to operate” analysis, which usually costs $5,000 by itself. Another way to limit costs is to make sure there is indeed an agreement at the term sheet level. Negotiating changes later in the process when the documents are largely completed adds to cost (just like change orders with a contractor; there will be additional fees).
3. Most US first through third tier venture capital funds will adhere to the basic terms Chris outlines. Foreign firms and angels usually have their own pet provisions, as do corporate investors. Expect deviations when not dealing with experienced U.S. venture funds.

#37 chris on 08.17.09 at 9:03 pm

Hi Tom -
Thanks for the comments. I’d generally agree with what you say. I’d definitely agree that the particular attorney matters more than the firm just as the particular VC does more than the VC firm.
On fees I agree I’m being aggressive (on the low side) but think it’s doable, especially if you agree to “standardization” as Fred Wilson suggests.
I haven’t done foreign deals – I expect your are right about that.

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#39 Twitted by davidblerner on 08.17.09 at 10:23 pm

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#40 William Carleton on 08.17.09 at 11:01 pm

Chris, great post; I hope you’ve started something that leads to further standardization at the seed and Series A stages. I have to differ, though, where you recommend that entrepreneurs go with the “standard” startup lawfirms (and this is based on a single bad experience?). Not that there is anything necessarily wrong with them for being the conventional choice; Wilson lawyers at the Seattle office in particular in my experience have always been stellar. But there are plenty of us “non-standard” lawyers at small firms and boutiques who leverage past experiences working with startups, investors, in house, etc., who are passionate about entrepreneurs and whose counsel and advice may mesh better with serial entrepreneurs in particular who don’t necessarily want to tread a prior path. Just saying.

#41 Peter on 08.18.09 at 12:32 am

Chris- I wholeheartedly agree with what you say.
We recently had a discussion with another founder about the CEO compensation. I believe the right incentive is that the optimum is a mixture of fixed and variable. Fixed should be high enough so that they don’t have to worry while the variable should be something around 20 to 30% and based upon specific goals for that period (usually one year). The variable should only come from the actual cash they were able to generate. Hence this is only reasonable when the startup is cash-flow positive. I believe success on the way should be rewarded.
Interested to hear your opinion on that.

#42 chris on 08.18.09 at 9:36 am

Andy – I would hope all engineers do an expected value calculation. If they don’t believe the company is exceptional, they shouldn’t join.

#43 Sachmo on 08.18.09 at 2:27 pm

This may seem like a dumb question, but how is the board / control rights usually structured in a first round term sheet?

It seems kind of unfair to me that an investor / VC can oust a founder, despite owning less than 50% of the company per say…

#44 Bubba on 08.18.09 at 2:52 pm

This is a great piece. I’d have to agree that setting standard boilerplate terms and conditions makes a lot of sense, reduces time and cost, etc. I’d also agree that the vast majority of wasted time and energy in non-standard deals is usually around those points that have the lowest probability of impacting long-term value in success.

The only point of disagreement that I’d have with what has been presented is on founder comp. As it looks like I’m in the significant minority here, I’ll just make the quick point and move on.

It’s been my experience, over the past 18 years or so of investing in deals (and bringing in investments as well), that you get what you pay for, and the management team (particularly in a start up) is critical to the success of a venture. If you cap what you’re willing to pay arbitrarily, then you’re either investing in the wrong company, are investing in a company whose founder isn’t necessarily critical to success, or setting a criteria that could lead to you not participating in a great deal.

I’ve personally seen few deals that the valuation (if the company was successful) was more important than the key people driving the company.

Maybe put another way, if an entrepreneur and/or his venture is so tenuous that he’s willing to pursue it while eating Ramen, then maybe it might not be the right deal…. I don’t know of too many of us in the VC community eating Ramen until we’ve hit our return hurdle to our investors…

Just some food (hopefully not Ramen) for thought…

#45 Matt Mihaly on 08.18.09 at 7:53 pm

Bubba: If an entrepreneur is willing to pursue it while eating Ramen that doesn’t speak to the quality of what he/she is working on. It speaks to his/her dedication to build something and not profit off it until it’s created value for the investors backing it.

–matt

#46 links for 2009-08-18 « Blarney Fellow on 08.18.09 at 8:20 pm

[...] cdixon.org / Ideal first round funding terms (tags: startup vc legal) [...]

#47 Steve Kane on 08.18.09 at 9:19 pm

Hi Chris. Nice post, but I do gree with the comments here about “substinence” pay. Do you believe partners and staff at VC firms should also receive substinence pay uintil/unless they get their “carried interest” (that is, until/unless they successfully “exit” their funds)? I can’t really see any difference between the task of a founder and of a VC — take venture capital dollars and turn them into venture capital returns. Yet VC partners and staff receive relatively huge (way above market) compensation simply as salary, and guaranteed for 7-10 years, no less — guaranteed, that is, as long as their funds pay out flat, pre-negotiated, non-success-or-milestone-measured management fees.

Founders and entrepreneurs and startup staff — and venture firm staff — are compensated with a mix of cash and vesting equity — why should the portfolio company human costs be viewed any differently than the funds overheads?

As I like to remind my many VC friends — the person who is incompetent when negotiating with you for funding is likely to be incompetent negotiating with everyone else, too.

#48 Steve Kane on 08.18.09 at 9:51 pm

Second comment –

The best way to standardize term sheets AND control legal costs would be to have VC pay their own legal bills

Its a bit unfair to view attorneys as the principal factor driving up legal costs — having done a large nunber of delas, I can say the main reason legal costs balloon is that every VC in every deal expects to be able to have their own law firms review every word. And these law firms are under no pressure to keep it lean and mean — they are not being paid by their clients (the VC firms) but rather by their clients opponent sitting across the table!

Imagine if VCs had to pay their own legal bills (and, um, isn’t that what management fees were supposed to be for?) deals would quickly be near-standardized and attorneys would be under tremendous pressure to make it neat clean and fast (after all, a tsratup is a short term, small file client, but a VC firm can be a longterm, cash cow for a law firm.)

Even better, all that portfolio company funding money would (drum roll please) actually go to work in the portfolio company, and not to give VCs compensation raises (by freeing up management fees to pay bigger salaries.)

I know, I know. It’s a crazy fantasy. But a guy’s got to dream, doesn’t he?

#49 Twitted by markgeller on 08.19.09 at 11:43 am

[...] This post was Twitted by markgeller [...]

#50 Bubba on 08.19.09 at 2:35 pm

Matt -

I apologize for perhaps not having been clear enough in the articulation of my view.

I’m not saying that an entrepreneur being willing to eat Ramen precludes the deal being of potential value.

I’m saying that in all the deals that I’ve done (good, bad, and indifferent) I’ve never seen a correlation between the value of the investment and what the founder is eating. The compensation to the founder needs to be FAIR and appropriate, and I don’t think that arbitrarily setting this at some subsistence level is going to result in a better return profile for the fund and is more likely to deselect opportunities that could represent good return potential for the fund (as would ANY arbitrary parameter).

Put another way, as someone that has participated in a number of funds as an LP, the other standard terms that were presented in this excellent outline were thoughtful, articulate, and drive value. Were a fund manager to approach me as a prospective LP and tell me that one of their standard deal terms was that they would require a subsistence compensation plan to the founders of the company in which they’d invest, I’d show them the door. This, in my mind, would be akin to screening prospective deals out of a pipeline because prior investors had received too high a return in an up-round. I’ve seen this happen and have asked the same types of questions when these situations arise – “where in my financial return profile does what others have made prior to my investment show up?”

To make what Chris has put together (which is already extremely good) something great – I’d simply move founder comp to the “to be negotiated” column and move on.

#51 Brad Parker on 08.19.09 at 3:44 pm

Chris – Fred Wilson pointed you out to me and I must say he was right. This is all part of the best advice I have ever seen for startups…

Brad Parker
co-Founder
http://www.muzlink.com

#52 Tom's opinion: Chris Dixon excellent blog on 08.20.09 at 7:48 am

[...] Tom has fytched a comment 3 days ago while browsing http://www.cdixon.org/?p=271 [...]

#53 Jerry on 08.20.09 at 6:28 pm

#39: I would hope all engineers do an expected value calculation. If they don’t believe the company is exceptional, they shouldn’t join.

One challenge is that this expected value changes every day, and you risk losing a key employee due to the natural gyrations of this number. I’ve lost good engineers in dark times, only to have things improve the next month. Paying more than subsistence gives you a bit of a buffer when a key engineer gets a call from a recruiter.

#54 Davide on 08.22.09 at 11:28 am

What about Liquidation Preference ?

Is it acceptable and what should be a fair ratio ?

Priceless post Christ, thanks for sharing your experience.

Best’s

#55 chris on 08.22.09 at 12:24 pm

Thanks, Davide. I strongly favor 1x non-participating liquidation preference.

#56 Employee option pool–the German way « Disruptive Growth on 08.23.09 at 2:04 pm

[...] of the company’s stock is reserved for employees. Chris Dixon has commented on this with this brilliant post on his blog: Option pool – normally 10-20%.  This comes out of the pre-money so founders should be aware [...]

#57 The Funded Publishes “Ideal First Round Term Sheet” For Founders on 08.23.09 at 10:39 pm

[...] 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 [...]

#58 The Funded Publishes “Ideal First Round Term Sheet” For Founders | ScooperNews.com on 08.23.09 at 10:50 pm

[...] 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 [...]

#59 The Funded Publishes Ideal First Round Term Sheet | Posts MarketPlace on 08.23.09 at 11:01 pm

[...] 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 [...]

#60 The Funded Publishes Ideal First Round Term Sheet | Anthonyrobinson.info on 08.23.09 at 11:05 pm

[...] 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 [...]

#61 The Funded Publishes Ideal First Round Term Sheet | facternet: on 08.23.09 at 11:09 pm

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#62 TumbleTech » The Funded Publishes Ideal First Round Term Sheet on 08.23.09 at 11:24 pm

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#63 The Funded Publishes Ideal First Round Term Sheet | Viningmedia Nieuws on 08.23.09 at 11:40 pm

[...] 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 [...]

#64 Dan on 08.23.09 at 11:41 pm

Isn’t it better if the investors take preferred stock? This way the common and strike price of options can be set much lower than the preferred valuation. If the investors take common would it establish fair value for the options strike price, which would otherwise be higher than one could price it with the preferred and common structure?

#65 The Funded Publishes Ideal First Round Term Sheet | Stoth on 08.23.09 at 11:41 pm

[...] 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 [...]

#66 The Funded Publishes Ideal First Round Term Sheet | on 08.23.09 at 11:59 pm

[...] 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 [...]

#67 Tech News World » The Funded Publishes Ideal First Round Term Sheet on 08.24.09 at 12:01 am

[...] 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 [...]

#68 The Funded Publishes Ideal First Round Term Sheet | Techdare on 08.24.09 at 12:10 am

[...] 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 [...]

#69 The Funded Publishes Ideal First Round Term Sheet | Techdare on 08.24.09 at 12:10 am

[...] 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 [...]

#70 The Funded Publishes Ideal First Round Term Sheet on 08.24.09 at 12:12 am

[...] 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 [...]

#71 The Funded Publishes Ideal First Round Term Sheet | The Good NET Guide on 08.24.09 at 12:44 am

[...] 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 [...]

#72 The Funded Publishes Ideal First Round Term Sheet | ScooperNews.com on 08.24.09 at 12:59 am

[...] 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 [...]

#73 The Funded Publishes Ideal First Round Term Sheet - BlogAngle on 08.24.09 at 1:00 am

[...] 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 [...]

#74 ArticleSave :: Uncategorized :: The Funded Publishes Ideal First Round Term Sheet on 08.24.09 at 1:04 am

[...] 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 [...]

#75 The Funded Publishes Ideal First Round Term Sheet | Technology on 08.24.09 at 2:03 am

[...] 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 [...]

#76 The Funded Publishes Ideal First Round Term Sheet on 08.24.09 at 2:28 am

[...] 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 [...]

#77 The Funded Publishes Ideal First Round Term Sheet | The IT Chronicle on 08.24.09 at 2:33 am

[...] 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 [...]

#78 The Funded Publishes Ideal First Round Term Sheet | CHARGED's Digital Lifestyle at Work or Play on 08.24.09 at 2:53 am

[...] 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 [...]

#79 Tech Whiz Underground » The Funded Publishes Ideal First Round Term Sheet on 08.24.09 at 2:55 am

[...] 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 [...]

#80 “Standard term sheet” suggestions at VentureWoods - India's leading venture capital community on 08.24.09 at 3:36 am

[...] Chris Dixon has earlier proposed his (similar) “standard” termsheet here. [...]

#81 The Far Edge » Blog Archive » The Funded Publishes Ideal First Round Term Sheet on 08.24.09 at 3:38 am

[...] 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 [...]

#82 SortiPreneur on 08.24.09 at 7:54 am

Ideal Term Sheet…

There was a post on AVC last week (inspired by a post by Chris Dİxon) on what type of issues are important on early stage VC term sheets. Both posts and the comments are must-reads for any entrepreneur looking to……

#83 The Funded Publishes Ideal First Round Term Sheet | Codedstyle on 08.24.09 at 9:30 am

[...] 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 [...]

#84 The Funded Publishes Ideal First Round Term Sheet | Tech stuff center on 08.24.09 at 10:06 am

[...] 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 [...]

#85 TheFunded publishes a plain vanilla term sheet for VCs | Stoth on 08.24.09 at 10:43 am

[...] Term Sheet,” the document (embedded below) was inspired by a recent debate sparked by entrepreneur Chris Dixon (co-founder of Hunch) and investor Fred Wilson, who have been seeking a way to simplify the complicated provisions that [...]

#86 TheFunded publishes a plain vanilla term sheet for VCs | TechDozer.Com on 08.24.09 at 11:00 am

[...] Term Sheet,” the document (embedded below) was inspired by a recent debate sparked by entrepreneur Chris Dixon (co-founder of Hunch) and investor Fred Wilson, who have been seeking a way to simplify the complicated provisions that [...]

#87 TheFunded publishes a plain vanilla term sheet for VCs | UpOff.com on 08.24.09 at 11:08 am

[...] Term Sheet,” the document (embedded below) was inspired by a recent debate sparked by entrepreneur Chris Dixon (co-founder of Hunch) and investor Fred Wilson, who have been seeking a way to simplify the complicated provisions that [...]

#88 TheFunded publishes a plain vanilla term sheet for VCs | Newsfed - Aggregate local and tech stories with related videos and tweets! on 08.24.09 at 12:02 pm

[...] Term Sheet,” the document (embedded below) was inspired by a recent debate sparked by entrepreneur Chris Dixon (co-founder of Hunch) and investor Fred Wilson, who have been seeking a way to simplify the complicated provisions that [...]

#89 Ideal first round funding terms | Igniting Startups - nPost on 08.24.09 at 12:07 pm

[...] From cdixon.org [...]

#90 martin tobias on 08.24.09 at 5:10 pm

I can see this “ideal” term sheet was written by a founder with a huge chip on his shoulder. The problem is that these terms only work under “ideal” circumstances. That is friendly founder and investor (whatever kind). There are VERY few deals like that. The farther away from CLOSE FRIENDS the investor/founder are the more protections the investor will need. I have raised over half a billion dollars for various startups and invested personally over $20M of my own funds as well as funds as a partner at a VC firm. The right terms are those that get the deal done and correctly balance risk/reward at the time. The so called “un founder friendly” terms are in fact shifting the risk/reward scale over to the investor because they feel they need more reward for a higher risk. That is in many cases appropriate.

#91 chris on 08.24.09 at 5:23 pm

Martin – Actually these terms were written by a founder who is also an active investor and who prefers these terms as an investor as well. I certainly try to only invest in people I trust but only a few are close friends.

I’d be curious which protections you think are important and missing.

#92 Shared Items - August 24, 2009 « Jeetu’s Shared Memory on 08.24.09 at 6:47 pm

[...] Ideal first round funding terms [...]

#93 Floost on 08.24.09 at 8:50 pm

Hmm… I read blogs on a similar topic, but i never visited your blog. I added it to favorites and i’ll be your constant reader.

#94 TheFunded publishes a plain vanilla term sheet for VCs | Hot Trends 2 Tweet on 08.25.09 at 3:26 am

[...] Term Sheet,” the document (embedded below) was inspired by a recent debate sparked by entrepreneur Chris Dixon (co-founder of Hunch) and investor Fred Wilson, who have been seeking a way to simplify the complicated provisions that [...]

#95 投資家の起業家虐待を防止するThe Fundedの<最初の資金調達ラウンド用のタームシート> on 08.25.09 at 6:15 am

[...] 今月初めにエンジェル投資家でHunchのファウンダChris Dixonが彼のブログに、ベンチャーキャピタリストはベンチャーの投資ラウンドに関し標準的でファウンダフレンドリーな取引条件を用いてほしい、と書いた。記事中には彼が提案する条件の一覧もある。Dixonはこう言っている: “私の好みとしては、上の条件をすべて守り、交渉事項は評価額と投資増額の2点のみとすることである。” [...]

#96 Pat on 08.25.09 at 10:31 am

“Founder salaries – these should be “subsistence” level and no more.”

I agree with the idea the that founders should be getting wealthy with customer dollars not investor dollars. That being said, my time is more valuable than your money. I can never get more time in my life. I must be able to recoup all my invested time and savings. My family’s financial well-being depends on this. My extended family is poor and would not be able to help if my family suffered any major financial setback ( disability or death). Any investment offer that does not recognize these fundamental realities is not worth taking.

#97 John on 08.29.09 at 8:53 pm

“That being said, my time is more valuable than your money.”

1) Then don’t take the money.

and

2) The after tax dollars Angels put into these ventures are a tangible manifestation of their own sweat equity that has actually been translated into value – Money. Follow me here; the dollars represent not only hard work but hard work that was exchanged for money in excess of “necessities” now used for this investment. Those dollars are not speculative they have an objective proven value.

The attitude that your time is worth more is a big part of the problem.

#98 Point of order: Standardised termsheets are not the answer for startups  on 09.03.09 at 9:42 am

[...] fair amount of debate and comment over the past few weeks. VC Chris Dixon got the ball rolling with his post on the ideal termsheet, then Fred Wilson weighed in and finally the mighty Michael Arrington, no less, on TechCrunch, [...]

#99 Ganapathy on 09.03.09 at 11:42 am

The Angels should also be subject to drag

#100 Ideal first round funding terms — cdixon.org – chris dixon’s blog | work4real.net on 09.25.09 at 5:01 pm

[...] Show original post here [...]

#101 Yesdi on 09.30.09 at 3:14 pm

“I would hope all engineers do an expected value calculation. If they don’t believe the company is exceptional, they shouldn’t join.”

Which is exactly what happens – most startups are NOT exceptional (by definition), people refuse to join for subsistence salary and the company is forced to pay market rates.

The only problem is when someone (either the VC or the founder) is deluded enough to persist in their belief that offering a subsistence salary is what makes the company exceptional, rather than the other way around.

#102 Mark Essel on 11.29.09 at 4:08 pm

It was fun looking back at a comment I left at the end of August on this 13th popular post Chris. 10/10 for the great advice to those seeking funding and for getting me to reread a couple of key concepts.

The concept I was describing then, has actually been realized (although in a limited way). Woot for progress. It’s evolving in some different ways than I first imagined though, which is pretty groovy.

#103 2startups on 01.02.10 at 6:35 am

It is fine for VCs to ask for subsistence level salary. Do they not take management fees? Why do they share in the upside and not in the downside as far as their LPs are concerned. Innovation does not come from engineers who are forced to count their pennies…

#104 Don’t be innovative about the wrong things cdixon.org – chris dixon's blog on 02.16.10 at 10:21 am

[...] 4 year vesting with a 1 year cliff; yes founders should have vesting; yes your deal terms should be plain vanilla. Etc. These things are time tested and you are far more likely to screw things up than create value [...]

#105 Don Hecker Lawyer Headlines » Don’t be creative about the wrong things on 03.18.10 at 10:02 am

[...] 4 year vesting with a 1 year cliff; yes founders should have vesting; yes your deal terms should be plain vanilla. Etc. These things are time tested and you are far more likely to screw things up than create value [...]

#106 Picking a Startup Lawyer in NYC « The Metamorphosis on 07.22.10 at 8:22 pm

[...] Read Chris Dixon & Fred Wilson's blog posts on how much legal fees should run in first round financing. Answer: $10k max. Drill this into your head, then drill it into your lawyer's head. Print out both posts and take them to whatever lawyer you hire. Great negotiating tactic. Hard to argue w Fred Wilson. BONUS: Capture the look on their faces when you bust out the printouts with that "$10k" figure underlined/circled/highlighted. Priceless. [...]

#107 Justin Heikkinen on 08.31.10 at 11:01 pm

Just came across your blog for the first time the other day and wanted to say thanks for taking the time to share your experiences and knowledge with the rest of us. We are just starting the fund raising process and will obviously rely on our current network to make intros where available and relevant, but would love to read your thoughts on how to stand out when 'cold mailing' firms you have no connection to – even if that advice is to just avoid those firms. Thanks!

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