Annoying Term Sheet Things

Rick Segal is in the middle of a negotiation and is having some frustration with his co-investor – a “US VC” – around settling on a few terms that he thinks are silly.  I agree with two of them but struggle with the third.

  • Expenses: If the deal doesn’t close, the startup pays.  I agree – that’s silly, especially for an early stage company.  I can imagine some later stage / VC buyout type deals where this might apply, but it doesn’t make sense in an early stage deal.  However, the company should always pay (using their newly raised money) when the deal closes.
  • Exclusivity Term: 90 day exclusivity is too long.  I agree – if you can’t get the deal done in 45 days from the signing of the term sheet, something is wrong.
  • Founder Buy Back: This one isn’t simple – it’s very context specific, personality dependent, and linked to stage, capital structure, roles and responsibilities of the founders, existing and future management team, and a whole bunch of other stuff.  I don’t think there’s a general case here – I think you have to address this deal by deal.

Rick – don’t worry about the “US VCs” – if they are offended by the philosophy of Canadians, just offer to take them to a hockey game.