Navigating Term Sheets
For a first time founder, this is not easy. Sure there are the touted SAFE docs from YC because it makes life easy but building a business is not easy. To me, SAFE documents, are about as good as the paper they are written on.
The questions from first-time founders range from valuation, board seats, terms, expectations, how do navigate multiple term sheets vs one, what if you have plenty of money soft circled but no lead, how much should a lead put in, and it gets more complicated when there is not one point person who can help you navigate this stuff.
There is a lot of information written about this topic. It is easy to get lost in the weeds. My advice is to find one person who is in your tent that gets it and can give solid advice and cares about you and nobody else to help guide you.
Too many cooks in the kitchen always spoils the broth.
Comments (Archived):
a mentor, a great lawyer and a reread of fred’s mba monday’s is a good way to approach.
I like the concept of ‘soft circled’ applied to other things.An example is with when I deal with commercial tenants. First thing I learned to do is charge an unheard of (in the particular situation) ‘lease fee’ to draw up a lease. Everybody seems interested and is ready to move forward until they hear about a cost for drawing up the lease. [1] This isn’t to avoid paying an attorney to draw up the lease. I do that. I just don’t want to spend my time if a tenant is not fully committed to paying a simple cost. [2][1] This is after a fully detailed LOI that I send by email spelling out everything in detail.[2] This is not blanket advice for all tenants and all situations (and refers specifically to commercial not residential) just for the type of people that I deal with.
I think the reason some of this happens to first time founders is because they have never been ‘jerked around’ in business or run even a small business. Not intended to be a dig just reality. As such perhaps they are not familiar with how people operate even those that have the best intentions.One of my first experiences in business (but not the first) was when I did photography for personal injury lawyers in high school. I actually had to pursue them for payment for assignments. Seriously I was high school student and they would not pay promptly even (at the time) a small cost of $35 for photos I had taken and developed in my basement of car wrecks. You learn from those experiences (and no the answer is not to have contracts). The learning was better than the money right? (Remember when you had to earn money to buy a stereo and other things you wanted?).My ex wife, when she was pregnant, had to chase Pizza shop owners to pay their advertising bills for her small ‘publication’. Quite common they would say ‘I will have a check for you come pick it up’. She’d drive into the city and park and go and the owner would not pay just ‘oh sorry don’t have it’. Just like that. Selling is one thing collecting payment and getting paid is another.