The First Rule Of Negotiation – Understand The Standards

You’ve just received a term sheet for your seed round. It looks pretty good, the investor seems honest and as a startup, you really, really need the funding. But how do you understand the sort of deal you’re getting?

Entrepreneurs and investors are demanding simpler, faster, less expensive ways to document seed rounds. This is driven in part by deal sizes, which are getting smaller. For a typical deal, early-stage funding terms should be fairly straightforward. But how can you tell if the deal being proposed is a good one? How can you use technology to help you?

Fortunately, there are widely-used models out there to make things easier, and by understanding them, your negotiating power is improved considerably. Your arguments are much more persuasive if you can point to a well-recognized precedent.  But how do you find these precedents?

The Online Term Sheet Comparison Tool

GreenLine Legal, Inc. and StartupLawBlog are proud to introduce Greenline’s new online tool that helps solve this problem.  A number of organizations such as the National Venture Capital Association and Y-Combinator have created widely-used model term sheets to simplify the funding process, but unless a term sheet literally clones one of these (and you’re comfortable with the model itself), you or your lawyer must do a careful and thorough analysis of each provision. Until now, there was no way to see in one quick and easy step how a given provision compares to these.

GreenLine’s technology uses a machine learning algorithm to recognize legal provisions within agreements and can extract and compare these for rapid analysis. This tool will allow entrepreneurs, investors and lawyers to quickly compare and extract provisions from contracts for comparison.  GreenLine’s term sheet comparison tool is open to the entrepreneurial community free of charge through StartupLawBlog.

“As I’ve been talking about in my Law Firm 2.0 series, I think there’s a huge potential for technology to improve legal services, both for lawyers and clients” said Jason Mendelson, former attorney and Managing Director of Foundry Group, a venture capital fund, “I’ve used the tool myself and think it will help simplify the early-stage funding process.”

Just upload one or two term sheets, select which of the models you would like to compare and pick the terms that you’d like to see. You’ll get a table comparing the analogous terms side-by-side, showing how the provisions in your term sheet compare to these market norms.  GreenLine expects to add additional models (such as the example in Brad Feld and Jason Mendelson’s New Book) in the near future.

Where To Go Next

If you have questions or need help with negotiating your term sheet, you should consult your attorney.  Or if you need support for the tool, go to www.greenlinelegal.com.

Cautionary Statement: Use of the tool does not constitute legal advice. In all instances, companies are encouraged to consult their own attorney in evaluating legal documents.

Send to Kindle
  • http://www.wac6.typepad.com William Carleton

    Joe, this is awesome! I’ve met Ehren, too, and am excited about what he’s doing and the potential contribution that can make generally to the de-mystification of legal documents (knowing what the standards are trumps style-based reforms, I think).

    It’s very cool of you to offer this so openly. I’m looking forward to trying it out myself! In addition to being a good educational tool for entrepreneurs, it could also be a good tool for startup lawyers to help their clients focus on how different proposals compare.

    • http://twitter.com/ehrenbrav Ehren Brav

      Thanks, Bill – we’re working on a host of new features…will keep you in the loop!

  • Anonymous

    Thanks for the resource, Joe!  I’ve posted this on my class website– this is my fourth year teaching Venture Capital investing at Foster (University of Washington MBA program)– and with tools like this, I learn something new every time.  Awesome stuff, and thanks again for sharing! 

    • Anonymous

      Thanks Rebecca!

 
Google