This term sheet template is very investor friendly primarily because of the lack of detail.
The Company has very little leverage after a term sheet is signed especially given a standard no-shop provision. You want to reduce the number of items that need to be negotiated later in the process as much as possible.
This not only reduces the likelihood of having to agree to a less than favorable term that was not addressed in the term sheet, but also reduces legal costs (which the Company is paying).
The post does make note of this:
> Some great investors still send longer term sheets, but this has more to do with their preference for going a bit deeper into the details at this stage, rather than deferring this until the definitive documents. The definitive documents are derived from the term sheet and are the much longer (100+ pages) binding contracts that everyone signs and closes on. It’s common to negotiate a few additional points at this stage, though deviation from anything explicitly addressed in the term sheet is definitely re-trading. Also, in a few places, this term sheet refers to certain terms as being “standard.” That may seem vague and circular, but term sheets frequently do describe certain terms that way. What that really means is that there’s an accepted practice of what appears in the docs for these terms among the lawyers who specialize in startups and venture deals, so make sure your lawyer (and the investor’s lawyer) fit that description.
Agreed. A founder should assume any ambiguity in a term sheet will be resolved in the investors favor (since you're very unlikely to walk away from a deal after signed). I preferred more comprehensive term sheets so that we could pin everything down while the investor was still in "courting mode".
Something we did in our later financings was to (very politely) provide an interested investor with a fairly comprehensive (~7 pages) template term sheet that had blanks for the major economic terms, but otherwise fully specified all the details of the proposed deal. This kept things from drifting off "founder friendly" after signing and had the added bonus of making offers easier to compare.
In practice, the firms that give 1-pagers don't really try to pull a bait and switch like that. They offer the 1-pager so they can close quickly, not so they can get quickly into the no shop to drive onerous terms. Could a firm consciously adopt that strategy? Sure, but it wouldn't last very long because people talk to each other.
Also, even the 1-pager goes into detail on liquidation preference, veto rights, board composition, drag-along and founder vesting. These are the items that get negotiated a lot or are otherwise really important to know before signing up.
As mentioned elsewhere, this exercise was descriptive, not prescriptive. Some of the founder friendliest investors use term sheets that look similar to this. Some of the unfriendliest investors still send 10 page term sheets.
Why is the no-shop provision standard, especially given that this document says it's the only binding term? What's going on here? I'd like to understand it a bit more.
The Company has very little leverage after a term sheet is signed especially given a standard no-shop provision. You want to reduce the number of items that need to be negotiated later in the process as much as possible.
This not only reduces the likelihood of having to agree to a less than favorable term that was not addressed in the term sheet, but also reduces legal costs (which the Company is paying).
The post does make note of this:
> Some great investors still send longer term sheets, but this has more to do with their preference for going a bit deeper into the details at this stage, rather than deferring this until the definitive documents. The definitive documents are derived from the term sheet and are the much longer (100+ pages) binding contracts that everyone signs and closes on. It’s common to negotiate a few additional points at this stage, though deviation from anything explicitly addressed in the term sheet is definitely re-trading. Also, in a few places, this term sheet refers to certain terms as being “standard.” That may seem vague and circular, but term sheets frequently do describe certain terms that way. What that really means is that there’s an accepted practice of what appears in the docs for these terms among the lawyers who specialize in startups and venture deals, so make sure your lawyer (and the investor’s lawyer) fit that description.