At some point in the game, every entrepreneur and startup founder becomes familiar with the term sheet. But “familiarity” can be a tricky qualifier. Even by one’s third startup, entrepreneurs are not always fully aware of the ins and outs of every term on a term sheet, or how to properly value their company. Just ask GRP Partner Mark Suster.
What’s more, there’s the legalese and the anxiety that VCs might sneak in some tricky terms — which all work towards making the process a confusing pain in the ass. No one wants to get duped, and entrepreneurs are always looking for better ways to compare term sheets with others in the space to get a sense of how founder-friendly terms are, what language should be agreed to, which should be negotiated, etc.
There are some great resources out there for entrepreneurs looking for information on term sheets: See this Quora entry that includes responses from Suster and many other VCs for a quick snapshot. But, today, we’ve found another tool that should be of great use to entrepreneurs, brought to our attention by entrepreneur and former corporate attorney Ehren Brav.
Brav, his company Greenline Legal, and Joe Wallin, an IP and startup attorney at the law firm of Davis Wright Tremaine and host of StartupLawBlog (who is also the founder of the Startup Trivia iPhone and Android app Erick wrote about), have teamed up to create a tool that allows founders to compare the provisions of term sheets side-by-side with a number of widely recognized standards. Many VCs and angels use the National Venture Capital Association’s template for agreements and term sheets for series A and B rounds as well as Y Combinator’s open source term sheet for seed and series A deals, for example.
Wallin’s Greenline Legal is the company behind the cloud-based software that enables lawyers and business people to compare and summarize disparately formatted legal docs in such a way as to clear out the noise and confusing language and highlights the important differences between documents. The Term Sheet Comparison tool, said Wallin, is the first public launch of the company’s software, and it’s a pretty cool way to start out, as it allows entrepreneurs to quickly (and instantly) see how a term sheet compares to models like that of NCVA and Y Combinator.
For those interested in a more technical description, Greenline applies machine learning alogirthms to “identify, extract, and categorize legal language, pulling out and matching up the comparable provisions”, according to Wallin’s StartupLawBlog.
The software tool then juxtaposes your provisions with those of the models to easily show the differences in language. The team said that they will be adding additional model term sheets in the coming weeks, but the tool as it is currently is already a great way for founders to focus on critical issues in comparison with market norms, better understand the terms in oftentimes complicated deals, and become a better negotiator.
The better you understand the terms, the more likely you are to help navigate your company’s way to a favorable term sheet and mind-blowing success.
To check it out for yourself, click over to StartupLawBlog, or see the video below:
Excerpt image courtesy of Cayenne Consulting