Series Seed normalizes VC term sheets

A new effort is under way to take the sting out of documenting early-stage venture financing. But that doesn't mean you don't have to pay attention.

Anyone who has ever been involved in a venture financing deal knows what a headache term sheets can be.

Term sheets, which describe the terms of the financing deal being negotiated, tend to have a laundry list of oft-confusing conditions that has to be met before financing can occur.

And while lawyers experienced with venture financings are a dime a dozen (make that $450/hour each) in Silicon Valley, negotiating the terms of your deal is fraught with anxiety and occasionally peril.

The one thing you can be assured of is that the lawyers will take a nice chunk of your financing. Based on my experience and some quick confirmations from others it typically costs about $50,000 for each party, meaning the company and the VC firm pony up $100,000 just to close a deal. And in many cases the company pays for both sides. That's $100,000 of your new financing out the door just for paperwork.

Many companies have recently been raising less money than was the norm just three to four years ago. While $4 million was the norm in 2006, $1.5 million is more common for Series A start-ups these days. This of course means that the cost associated with closing the deal has to be commensurately trimmed down as well.

A new Web site and series of documents were recently released to address this disparity and attempt to normalize the hassles of term sheets, which tend to become extremely customized despite the fact that they are generally not too different from one firm, or one company to the next.

The Series Seed documents are a set of guideline documents that allow start-ups raising less than $1.5 million to lighten the burden of the legal process. Documents include a certificate of incorporation, a preferred stock purchase agreement, an investors' rights agreement, and a seed term sheet.

A decent-size group of venture firms have agreed to use the Series Seed Documents in their deals, including Baseline, Charles River Ventures, SV Angel (Ron Conway), First Round Capital, Harrison Metal Capital, Mike Maples, Polaris Venture Partners, SoftTech VC, and True Ventures.

About the author

Dave Rosenberg has more than 15 years of technology and marketing experience that spans from Bell Labs to startup IPOs to open-source and cloud software companies. He is CEO and founder of Nodeable, co-founder of MuleSoft, and managing director for Hardy Way. He is an adviser to DataStax, IT Database, and Puppet Labs.

 

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