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My partner Seth Levine has a detailed post up today titled Trada – from the beginning that describes the creation and financing of Trada. Foundry Group is the seed investor in Trada and Seth’s post describes one example of what I think is effective VC seed investing.
The meat of the funding story follows:
“Of course coming up with the idea is the easy part. Executing against that idea is another matter. In this case neither Niel (nor I) had any interest in creating a traditional syndicate to fund the company. Instead we quickly put our heads together about a financing (we like to say it was over beers, but the truth is more mundane – we hammered out the details in a 10 minute conversation in the conference room of the Foundry office). We decided that we wanted to bring in some experts to help us with the business and together flew around pitching the business to a small handful of strategic angel investors to pull together a small syndicate that became the initial Trada investor base. Niel and I hammered out a second financing in similar fashion (again around the Foundry conference table, this time without the need for an angel roadshow). It’s a great example of how we like to work with entrepreneurs – especially those that we have a long history with. We like to be involved early (in this case before an idea for a business even existed) and we think of our angel investments as a down payment on a subsequent investment in the business (we’ realize that we need to give early businesses some time to develop).”
The short version is that the seed round was figured out in ten minutes – this was the “Series A”. A few strategic angels were added to this round. We did a second financing by ourselves at an increased valuation – this was the “Series B”. Recently Google Ventures led the a $5.75m “Series C” round.
The terms on the Series A and B were straightforward as Niel Robertson, the founder/CEO of Trada is a sophisticated entrepreneur (Trada is his third company) so he had no patience (nor did we) for silly, complex early stage terms. More importantly, the two key aspects of any deal – price and control – we able to be negotiated quickly between Seth and Niel, partly because of their long history working together which was built on mutual respect and trust.
When we funded the Series A (the seed round) of Trada, we fully expected we were at the beginning of a multi-round journey. Seth does a great job of explaining how it got started – I encourage you to read his post for an example of one of the financing cases where I think a VC can be an excellent seed investor.
As of today’s announcement that Ted Wang at Fenwick & West has collaborated with a group of bay area early stage VC’s and angel investors to create the Series Seed Documents we now have – at my count – four different standardized seed financing documents floating around the industry.
- TechStars Model Seed Funding Documents (by Cooley)
- Y Combinator Series AA Equity Financing Documents (by WSGR)
- Founders Institute Plain Preferred Term Sheet (by WSGR)
- Series Seed Financing Documents (by Fenwick & West)
Many smart and capable people have either worked on these various docs on signed on as supporters. However, until there is one standardized set of documents that everyone – especially the various law firms agree on – I don’t expect there to really be a standardized set of seed financing documents. I wrote about this in my post The Challenge of The Ideal First Round Term Sheet.
Rather than whine about it, after reading the PEHub article Marc Andreessen on “Series Seed Documents,” and Why VCs Should Start Using Them I’ve decided to try to get a handful of lawyers in a room and try to come out with one set of documents. This might be a futile effort, which will prove the point that it’s impossible to create one standard set of documents. But – I’m an optimist, so I’m going to plan for a good outcome.
I’ll proactively reaching out to the appropriate folks at Cooley, WSGR, and Fenwick & West to organize a one day session, with laptops, somewhere in the bay area. I’ll include a handful of early stage investors (both VCs and angels) in this effort. My goal will be to finish the day with a truly standardized set of seed documents that all of the firms agree to use. Then we’ll open source these and evangelize them across the startup world, at least in the US.
If you are an attorney at a major national or regional law firm that works with startup companies, please email me if you are interested in participating. If you are a VC or angel investor that supports this effort – same drill (email me). Let’s end this madness (which I’ve been dealing with for 16 years and an angel and VC investor) once and for all – the entrepreneurs who we work with deserve better from us.
Sim Simeonov, a partner at Polaris Venture Partners, sent me (along with a bunch of his closest friends) the following email this morning.
“Founders often ask about the dilution they are likely to experience through exit. There are rules of thumb but there is no good data about what happens to common stock (at least, I haven’t been able to find such data outside of S1 filings which are a very biased sample). So, I built a little survey to collect anonymous data from entrepreneurs. I’ll crunch the numbers and share the stats with everyone. I’d appreciate your help in spreading the word around so that we get enough data.”
Sim is doing a short survey to collect this info. Help him become statistically significant by taking the survey – it looks like it’ll take less than two minutes. He promises to post the results on his blog.
Ever since David Cohen started TechStars, I’ve encouraged him to “open source” everything. We regularly get approached by people all over the world to talk about the program. We do – we tell them everything about what we do, how we do it, and why we do it. We share our documents with them. We try to help and support them.
We regularly get asked for the documents we use for doing early stage financings. I personally believe these documents should be able to be done on a single piece of paper and sealed with a handshake (or more preferably, a fist bump), but I’m generally alone in that view. So, we’ve worked closely with Cooley Godward Kronish, LLP (and specifically Mike Platt, who has been my go to lawyer and a close friend since I moved to Boulder in 1995) to put together a set of “Model Seed Funding Documents” that anyone can use.
There are five primary documents in the set:
Of course, these are just example documents so all legal disclaimers about usage apply (e.g. “do with them what you want, but we take no responsibility for your actions.”) That said, I think these are a great starting point for anyone doing an early stage financing.