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While some people hate the phrase “failing fast”, I find it instructive when it’s used to signify that one isn’t going to pursue a particular path in the context of a larger set of activities. A few weeks ago, I wrote a post about The Proliferation of Standardized Seed Financing Documents. It generated several hundred email responses and a handful of phone calls. A week or so later, my partner Jason Mendelson wrote a post titled Why There Will Never be a Standard Set of Seed Documents. I’ve concluded that Jason is right so rather than torture myself, I’m failing fast with regard to trying to help create a set of standardized seed documents.
Since I received so many private responses to the original post, I thought I’d summarize them here by type of respondent.
Lawyers: By far the largest numbers of responses were from lawyers offering to help (thanks!) I didn’t count them up, but I got well over 100 emails from all over the US. In many cases, the lawyer offered to come to the meeting, share their seed documentation, and work to make sure that seed documents were complete and acceptable to their firm. The vast majority of lawyers provided solid background on all the seed investment work they had done. Several weighed in with their views of the potential issues, often sighting the NVCA standard document process which everyone seemed to refer to as some version of “a mess.” A few made sure to remind me that east coast lawyers needed to be involved or the docs wouldn’t work on the east coast. A few brave ones told me why I was destined to fail but wished me luck anyway. Fortunately, due to the magic of Gist, I now have contact information for a whole bunch of lawyers I didn’t know before.
Entrepreneurs: The next largest number of respondents were entrepreneurs. I think all of them cheered me on, told me how much they hated paying lawyers for their seed documents, and asked if there was some way to reduce everything to a few standard pages, not unlike a mortgage document. A few told me “don’t include lawyer X in the process – he charged me $70,000 for my seed deal” and a few suggested that lawyers should have to use paper and crayons instead of word processors. Several asked if I’d be interested in funding their companies. All demonstrated a sense of humor about the situation.
VCs: The VC comments came in a few different flavors. A few said “I don’t see the problem – it’s fine having multiple seed documents.” Another reminded me that “great is the enemy of good” (although the real, and more relevant quote is “The perfect is the enemy of the good”) and the existing forms floating around are “very good – much better than they used to be.” Another suggested that none of the standard docs worked for him, but he was perfectly happy to sign the forms from Law Firm Z without any modification. Several asked me whether I was still watching 24 (yes, I will watch it to the bitter end.) I received private emails from each of my partners containing a slightly different version of “are you out of your fucking mind?”
LPs: I only had one email from an LP. It was a short one. “Don’t waste your time on this.”
After pondering all of this, I realized that I was both trying to solve a problem that didn’t really want to be solved while at the same time falling into a common trap of working on something that, while on the surface seems like a good idea, isn’t really my issue to solve, at least not in this way. As many of you know, the issue is not only the term sheet, but also the underlying documents supporting the deal. I think this is a nuance that is often missed, as the seed docs need to be robust enough to easily support a next round financing (Series A or Series B) since the seed financing is rarely the last one. So, while a simple term sheet might be able to be agreed on, I realized that getting the actual docs agreed on would be a miserable, and likely impossible, thing to try to deal with.
Hence my failing fast. While in theory this might be a great idea, I’ve concluded that I can’t be successful at this. There are plenty of people – namely all the lawyers that work with startups – that have a much greater incentive than I do to get this right, be efficient for the entrepreneurs they work with, and be cost-effective for the companies they bill. So, I’m going to leave it to them.
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.