In the “best entrepreneur gossip blog post” of the day category, Alan Meckler and the guys from LightReading.com give a public example of the issues in the intellectual exchange that Tom Evslin and I had around Serial Monogamy and No Shop Agreements.
Alan bitterly congratulates the LightReading.com guys for their sale to CMP for $30 million. He then goes on to say how the LightReading founders shafted him out of a deal to invest in the company after he “helped create it.” His feelings are obvious when he ends with ‘Stephen and Peter obviously made the right choice in being dishonest.”
The comments are interesting, especially #7 by Stephen Saunders, the President or LightReading. He challenges and clarifies all of Alan’s assertions, including the offer for investment (which Stephen claims was crappy – and different than the terms Alan claims (I’d love to see that term sheet) which is why they didn’t take it) and the amount of time that Alan spent with them (15 minutes vs. Alan’s claim of hours of time).
Now – I have no clue what the truth is, nor am I interested in taking sides. Alan tries to have the last word (it is his blog after all) and states that he’d rather be tarred with sour grapes than dishonesty. Of course, anyone can assert that anyone else is dishonest, so a data point of one from the accuser is a weak tarring.
Nonetheless, this is a great example of the issue Tom and I cross-blogged about.
Now – here’s a feature that’s useful for all the Gmail addicts in the world. Now, you can have your “From” address be anything you want for an email you send from Gmail. Finally.
Historically, if I sent an email from Gmail, it came from brad.feld@gmail.com. Now – I could set the reply-to to brad@feld.com. But – I couldn’t change the Send. Groan. Not good. Simple feature. Been around forever. Critically important to egomaniacs with simple to remember email addresses that aren’t afraid of spam (er, um, …)
Gmail just added the ability to customize the “From:“ address on outgoing mail. Much simpler, and much more interesting to me than Google Talk.
Or is that “everyone is chatting about twittering?” Google released Google Talk yesterday. While it’s an obvious first step, it’s unremarkable. Apparently, in response, Microsoft released MSN Messenger 7.5. A minor upgrade. And lo and behold – Skype announced SkypeWeb and SkypeNet. Ah – another API! Much more interesting.
I’ve been using Google Talk all morning. It’s fine. I’ve been using Trillian for more than two years. It’s “better than fine.” I’ve been using Skype (and SkypeOut) for all my phone calls in August (and some chatting). I like it much better than Vonage, although everyone tells me I just need a different phone and Vonage will be happy again (I’ll try from Boulder when I’m home next week.)
I’ve been using IM in some form (AOL, then Yahoo, then Microsoft, now all three via Trillian) for the past five years or so. It’s remarkable to me how a limited, light weight chat client can get so much buzz. Now – while it’s clear where Google can go with this – it’s now got to go there.
As I was writing this, one of the guys in my office sent out a love note:
“If any of you have a gmail account please send me your gmail e-mail ID and I will invite you to use Gmail Talk if you have not already gotten an invitation – this is really good. Excellent quality – better than skype, imo and effortless to use. Download of client took 15 seconds and I was up and running – amazing!”
True, but can you call me on my cell phone with it? Yeah – I know – soon.
Jason and I hope you enjoyed reading our term sheet series at least as much as we enjoyed writing it. While we won’t be competing with our friend Jack Bauer for any drama awards (I tried to make it 24 posts, but could only get to 20), we’ve tried to take a balanced and pragmatic approach to explaining the mysterious “VC term sheet.” Remember – we’re not lawyers (ok – Jason is) and this isn’t legal advice so you should not rely on it for anything, yada yada standard disclaimers follow. In other words, use at your own risk.
For ease of reference, following are the various sections (linked to their corresponding post) that we covered.
- Price
- Liquidation Preference
- Board of Directors
- Protective Provisions
- Drag Along
- Anti-Dilution
- Pay-to-Play
- Dividends
- Redemption Rights
- Conversion
- Conditions Precedent to Financing
- Vesting
- Information Rights
- Registration Rights
- Right of First Refusal
- Voting Rights
- Employee Pool
- Restriction on Sales
- Proprietary Information and Inventions Agreement
- Co-Sale Agreement
- Founders Activities
- Initial Public Offering Shares Purchase
- No Shop Agreement (also Unilateral or Serial Monogamy)
- Indemnification
- Assignment
If you have any questions, comments, or suggestions for things we missed, email me anytime. We have had numerous requests for republishing this content – if you are interested, please contact me. We’re usually happy to oblige – we just want to make sure we know about it. Until next season …
We’re down to our last two sections on a typical VC term sheet. Since they are both things that most entrepreneurs simply live with as part of a financing, we decided to combine them into one post.
The first clause is indemnification and usually looks as follows:
“Indemnification: The bylaws and / or other charter documents of the Company shall limit board member’s liability and exposure to damages to the broadest extent permitted by applicable law. The Company will indemnify board members and will indemnify each Investor for any claims brought against the Investors by any third party (including any other shareholder of the Company) as a result of this financing.”
Given all the shareholder litigation in recent years, there is almost no chance that a company will get funded without indemnifying its directors. The first sentence is simply a contractual obligation between the company and its board. The second sentence – which is occasionally negotiable – indicates the desire for the company to purchase formal liability insurance. One can usually negotiate away insurance in a Series A deal, but for any follow-on financing, the major practice today is to procure director and officer (D&O) insurance.
The next clause – assignment – looks as follows:
“Assignment: Each of the Investors shall be entitled to transfer all or part of its shares of Series A Preferred purchased by it to one or more affiliated partnerships or funds managed by it or any or their respective directors, officers or partners, provided such transferee agrees in writing to be subject to the terms of the Stock Purchase Agreement and related agreements as if it were a purchaser thereunder.”
The assignment provision allows venture funds to transfer between funds and make distributions to their limited partners (their investors). This is something companies must normally live with and is a term that is rarely availed upon by investors.
Neither of these terms should be controversial. The company should be willing to indemnify its directors and will likely need to purchase D&O insurance in order to attract outside board members. The assignment clause simply gives VC firms flexibility over transfers which they require to be able to run their business and – as long as the VC is willing to require that any transferee agrees to be subject to the various financing agreements – the company should be willing to provide for this (although entrepreneurs should be careful not to let the loophole of “assignment without transfer of the obligation under the agreements” occur.)
Matt Blumberg posted about his switch to FeedBlitz the other day (from Bloglet). If you receive my blog via email, you’ll notice that you are now receiving it via FeedBlitz also (instead of Bloglet).
After my post on Blog Analytics describing the various technologies that I’m using on my blog, I received an email from Phil Hollows, the guy behind FeedBlitz, suggesting that I give it a try. I’ve been frustrated with Bloglet for a while (it’s up, it’s down, it’s up, it’s down), I’ve received several other “try my RSS to email” delivery services, and we’ve been talking about the best way to incorporate this capability into FeedBurner (partner, acquire, engineer ourselves) so my brain was open to trying a new service.
Phil brilliantly pointed out that he had built a seamless data migration from Bloglet which was my biggest barrier to trying something new (e.g. what a pain it would be to tell everyone “hey – please switch by resubscribing” and – while I could get at my data within Bloglet – it was a manual process that would probably take me an hour to deal with. However, FeedBlitz handled it automagically as part of my setup and within 5 minutes I was switched (as were you if you are reading this via email).
I turned Matt (and a few other Bloglet users who I expect will be switching soon) onto FeedBlitz and Phil and let it run for a few days. In addition to being super-responsive, Phil has integrated FeedBlitz into FeedBurner, so my FeedBlitz stats are now included in my FeedBurner stats and all the fun stuff I put in my FeedBurner feed (more coming soon) is including in FeedBlitz.
Nicely done Phil – you got me. Tom Bartel saw Matt’s post and switched also. We keep on sneezing.
One of my pet peeves is the trendy overuse (and misuse) of certain words. I’ve railed in the past on the endless use of traction and space by my VC and entrepreneurial brethren. “World class” no longer means anything to me and I wish more people would use the word “fuck” in casual conversation since it’s so versatile.
When I received the following email from Richard Matthias today, all I could do was smile.
“Since you were banning words a while back I’m wondering if could ban the word ‘play’ as in “the China play”, “the energy play”, “the tech play”, etc. I don’t think I read you use it, but anyway, I’m fed up with hearing investors talking like they’re football coaches. You’re not football coaches, you’re not even talking about football!”
Right on Richard. It’s too bad I don’t have the power to ban words – I would if I could.
I just IMed a colleague who recently completed a Herculean task. I asked him how it felt to be done. He responded “About like a fish feels as he passes through the shark’s teeth on its way to the digestive tract.” Meditate on that for a while. Wait – is that a metaphor or a simile? Where is Amy when I need her?
A short spot on National Public Radio today titled Computer Science: Calling All Women does a super job explaining why I’ve been working with Lucy Sanders on the National Center for Women & Information Technology. In three minutes and thirty seconds, you’ll hear what the issue is, why we care, and a few of the things we are doing.