whether or not VCs are “fair” about terms & liquidation preferences, there is a substantial amount of transaction asymmetry between entrepreneurs & VCs.

more education & transparency will help increase overall health of market in the long-term, and likely contribute to expansion.

There’s a strong reason to drop the “post to view” policy, which requires that you can’t view any of this ‘term sheet’ information until you post one yourself. I’m a bootstrapping entrepreneur who has not raised VC money yet, even though I’ve been a founder previously. Also, I founded a group called “Agile Entrepreneurs”, where founders of startups who are primarily bootstrapping gather to share advice and information to help each other. Our entire group of about 50 entrepreneurs would benefit immensely from seeing the term sheet information. But with the “Post to view” condition, those who most need the information - the vast majority of our bootstrapping, first-time entrepreneurs - will be denied access to it.

The Funded.com needs to reconsider drop “Post to View” policy immediately.

Mittlerweile bildet sich mit TheFunded eine englischsprachige Webseite heraus, die Gründern viel “Schweiß und Tränen” ersparen kann. Wie ich gerade auf TechCrunch lese, ist das neuste Angebot das eigene Term Sheet (Papier, das die wesent…

People need to remember that the law firm make their money from doing deals. The way they get to do that is by having good relationships with VCs. Part of that means, not screwing up their deals. So it should be obvious that there is a conflict of interest here. It doesn’t mean that good lawyers can’t and don’t balance that out, but that doesn’t change the fact that there are incentives at work that could run counter to the interests of the “company” side of the VC/company spectrum.

I am wondering why that was not mentioned.

Cheers again!

PS: See this link for the following info, which may be of interest (just bear in mind the source): http://www.nvca.org/model_docu....._docs.html

The model venture capital financing documents consist of:

* Term Sheet
* Stock Purchase Agreement
* Certificate of Incorporation
* Investor Rights Agreement
* Voting Agreement
* Right of First Refusal and Co-Sale Agreement
* Management Rights Letter
* Indemnification Agreement

Of course, people need to use TheFunded responsibly, and not post negative reviews just because someone decided not to invest or was a good negotiator or something. And, yes, TheFunded needs a good system to address “trasher” concerns and/or “shills” or “fluffers.” I am guessing that the system will improve over time and it will become increasingly valuable to both investors and companies.

The best VCs — the ones with nothing to hide — will encourage increased transparency and encourage deal prospects to check sites like TheFunded. They will benefit.

The sketchy VC will discourage prospects from using sites like that. They may even try to scare people away from using it or refuse to do business with people who do. That would be like the home contractor pitching you on his services not wanting you look him up on the BBB website or refusing to do business with you if you do or if you express an opinion about your business dealings with him. It just makes no sense.

The best VCs will like the increased transparency. They sketchy ones, not so much. That’s the way it should be. That’s the direction we want to take things. That would be good for everyone (except the few rotten apples in the community). I say that as an entrepreneur, an investor, and a former venture debt and equity professional who has invested hundreds of millions of dollars.

Due Diligence

A good due diligence item for any entrepreneur is to check TheFunded (and similar sites). Same as checking out a seller’s reputation on eBay. Yes, sometimes there will be a person who trashes a seller for a minor thing, but it’s usually obvious that it’s an outlier. But if you see many negative reviews, it’s usually a good indication to stay away.

Another DD question might be “What do you think of sites like TheFunded?” No matter what response you get, it will be a “tell” about the prospective investor. And if they use your asking a legitimate DD question like that as a reason not to do business, then that probably confirms that you are dealing with someone who has something to hide. And if that is the case, it would probably be good information to share on sites like TheFunded.

Cheers,
chriso

VCs can not with good conscience insist that a CEO not fill out an anonymous survey.

TheFunded is just a site with information. None of this would be a big deal unless people have stuff to hide. Seems that there is a lot to hide given the controversy.

Enjoy the 15 minutes of fame.

If they send a term sheet and it has a confidentiality agreement in it and you don’t sign the NDA, you are free to distribute it in my opinion unless there is a previous written agreement precluding you from distributing or sharing.

And as a resource, the term sheet database is just fantastic. (and anonymized wouldn’t violate any confidentiality agreements.)

I can just imagine all kinds of possibilities with it. I’d love to track the terms over time. Remember in 2003 when liquidation prefs skyrocketed to 3-5x?! With sufficient participation, this database could provide a real-time view of the investment climate. As it is right now, you have to wait till January for PWC to publish their report.

Kudos to Rossi for a kickass site.

http://mogulus.com/mndoci

http://flickr.com/search/?q=st.....nd+seattle

thanks….

Apart from GOOOOOG, not a single spectacular IPO this time around and fewer M&As. VG was flushed down the toilet and won’t make it. Last time around, the line was endless … Netscape, Yahoo, amazon, Excite, Exodus, Ebay, Priceline, Inktomi, Akami, amid countless other deals. TC, phee-cee, gigom etc wont get to IPO ever

So there: head East young man, head East. HOT year-round in Shanghai and Mumbai (no kidding :0))

I felt he is really a nice guy like Mike.( And strong too )

Cheers, Nag

What is true is that VCs don’t like to take risks they don’t have to. So they’ll try to lock in some degree of downside protection via liquidation (not “liquidity”) preferences.

Working in the entrepreneur’s favor is the fact that subsequent rounds will demand terms at *least* as favorable for themselves, and they get taken care of first. That means that in an unhappy outcome the earlier investors get screwed right along side the entrepreneur. So there is a built-in reason for VCs not to get out of control.

The single most important thing an entrepreneur can do to protect her/himself and the other common shareholders is to have an experienced law firm representing the company. Those lawyers see a lot of term sheets, and they know where “market” is at the moment (note: it changes). This has two benefits: they can tell you whether what you’re being offered is good/bad/great in light of the *current* market conditions; and the venture firms know this to be the case and therefore tend to stay within the bounds of good taste.

Ultimately, the key to company-favorable terms is competition: make sure you have at least two term sheets. Like all other investors (and the rest of humanity), they live on the boundary between fear and greed.