Comments on: Failing Fast at Standardized Seed Deal Documents

By: Technically Philly » Does the VC industry need document standards? | Covering the Community of People Who Use Technology in Philadelphia.

Thu, 28 Oct 2010 14:11:09 +0000

[...] with probably millions of emails from the disparate groups wanting to help), Brad decided to set aside the [...]

By: 642-515

642-515 — Wed, 21 Apr 2010 03:22:02 +0000

I can't agree with more.

By: Brad Feld

Brad Feld — Fri, 09 Apr 2010 12:46:11 +0000

All good thoughts – thanks for the positive sentiments. I agree that an organic approach at this point seems like the right run.

By: Susan Morgan

Susan Morgan — Fri, 09 Apr 2010 03:14:09 +0000

(continued from prior piece …) As to further standardization, it may well be that an all-day drafting session is not the best route to achieving that goal. But the dialog that has begun here, could potentially lead to a more organic process that ultimately achieves the same results. Some of the authors of the various seed documents have talked about meeting, to determine if further conformance between their documents can be achieved. In addition, as the various constituent parties consider using one or more (or variations of) these publicly-available documents, and the documents themselves become updated to reflect further commonalities due to such usage, further standardization may well emerge.

So, rather than “failing fast”, I would say that perhaps you have just taken a different tack. An organized one-day drafting session may not be the right process for reaching standardization, but I think there is value in having publicly-available and periodically updated documents (even with some proliferation), and in maintaining this ongoing dialog among constituent parties, in an attempt to reach some consensus. We may achieve organically, what we are unlikely to achieve organizationally.

By: Susan Morgan

Susan Morgan — Fri, 09 Apr 2010 03:13:45 +0000

I understand the reasons for withdrawing from a proposed all-day meeting to create a standardized set of seed documents. But I would argue that this effort at standardization has not yet failed, not has your proposal to hold such a meeting been for naught. For one thing, an increased awareness of these seed documents has been propagated as a result, and a highly useful dialog about them has begun. The fact that we have publicly available seed documents (which have more terms in common with each other than not) is a tremendous step forward in simplifying and reducing the expenses of future seed series financings. As I wrote in a previous post (http://bit.ly/dlxpQu), this alone is an indication that we have already achieved some measure of success. (due to length – this has been broken into two pieces – see next piece following…)

By: Brad Feld

Brad Feld — Thu, 08 Apr 2010 00:23:05 +0000

Yup – I think a fee cap of around $10,000 (for both sides) is probably the right dynamic.

By: Ira Weiss

Ira Weiss — Wed, 07 Apr 2010 14:47:47 +0000

To entreprenuers….

As a serial angel investor and occasional VC — short of a standard set of legals docs — my recommendation to entreprenuers is to make sure that the term sheet always caps legal expenses for both the investor counsel and company counsel (or at a minimum, a 'fixed fee').

To find out a reasonable cap amount for your financing, ask other experienced investors and entreprenuers who are familiar with this stage investing, pointing out anything that might be somewhat unusual about the deal. Talk to lawyers as well, however, be prepared for some to point out all the problems with capping fees.

For a clean seed/series A deal, you can probably get it done with a cap on the investor side of 12.5-20K, but with a slightly higher cap for company counsel. Get counsel who is very familiar with these financings.

Keep the terms as standard as possible.

Ira Weiss
Hyde Park Angels and RK Ventures
http://www.hydeparkangels.com
http://www.rkventures.com

By: Donald E. Foss

Donald E. Foss — Wed, 07 Apr 2010 12:28:59 +0000

One man's garbage is another's treasure. In this case, I doubt the Frankenstein, for that is what it would end up looking like, would win any beauty contests.

By: Donald E. Foss

Donald E. Foss — Wed, 07 Apr 2010 12:27:35 +0000

Lawyers have the incentive to standardize their templates internally and train their staff to use them, but I don't think the lawyers have any incentive reduce our costs by 85%–$70k to $10k. Programmers and IT staff may occasionally work themselves out of a job, but lawyers rarely do. As someone mentioned earlier, many lawyers want the docs for each series to start from scratch, making each round more complicated and painfully expensive.

I agree that it would take a high-profile lawyer with iconoclastic tendencies to make any splash here because they wouldn't be affected by the disincentives–they've already made it and it would increase their standing and ego even further. It could also be a prominent VC firm that standardized their own docs and encouraged others to follow. The lawyers as a collective will never do it themselves.

By: DaveJ

DaveJ — Tue, 06 Apr 2010 18:22:14 +0000

Ross…