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We’re making our term sheet public. Here’s why.
Investment transparency - what it is and why we think it matters.
By: Rickard Vernet, General Counsel at Pale blue dot
TL;DR, we are making our standard term sheet public and plan to share more of our investment process in the coming months.
Why? Because we think transparency matters.
As a climate tech VC fund, we already share lots of our internal climate research - to share our findings and encourage open conversations. Now, on a similar note, we want to share some of our investment process documents and explain how we think about the legal terms in the deals that we do. Here’s why:
Efficiency for everyone
By making our investment process and terms publicly available, founders are able to access that information, prepare and know our position and process before even meeting with us. This saves time for everyone.
We want to spend as much of our time as possible with the founders who are building great companies. We want to spend that time understanding who they are, digging deep into their new company, and how their business model and growth strategies work. We want to spend less time discussing financing terms. Discussions about financing terms (important as they may be) can be time-consuming and inefficient. By sharing our standard investment terms and our reasoning behind them we hope we can avoid some of the unnecessary ping-pong of emails explaining our terms and why we think they’re fair - saving time for founders to focus on other things.
Diversity and equal opportunity
Without transparency and equal information, there is no equal opportunity. Asymmetry of information, or lack of clear explanation, can create an unfair disadvantage from one founder to the next, and at the very least can drain more of one founder’s time than the other.
We strongly believe in the importance of lowering entry barriers and de-mystifying the VC world so we can welcome more diverse founders. This includes those founders who might not have the pre-existing knowledge around the investment process, might not come from a tech background and might not be comfortable with the lingo. We’ve seen the impact of our open venture initiatives, like Pale blue dot’s diversity office hours designed for underrepresented people in tech to pitch or ask for advice, and have seen these initiatives not just help us source amazing deals (hi Hived!) but also help founders. We want to continue to open the door and share information openly, as we think this benefits both founders and investors.
So, how will we do this, and what will we share?
The term sheet is arguably both the most and the least important document you will sign in a fundraise. While legally non-binding, it practically sets the terms for the investment so that everyone involved feels comfortable spending time digging deeper into due diligence, structuring the round with co-investors, and drafting up the final investment docs.
Our term sheet is not a one-pager or a napkin. While summarising important issues in short and broad descriptions (a personal favorite is “customary vesting and leaver provisions”) can look nifty and fresh, practical experience shows that it is often a good idea to try to be clear on what you have agreed in reasonable detail before signing the term sheet. Once one arrives at the stage of drafting and sharing long and detailed agreements, it can quickly become apparent that different people had very different opinions about what those broad terms in the term sheet actually meant, to the great frustration of all involved. Our term sheet is intended to set out in reasonable detail the critical terms of the deal in clear wording so that (hopefully) there will be no surprises for anyone in the final agreements.
The vigilant reader may notice that our term sheet has no confidentiality or exclusivity clauses. We believe that the terms we offer to early-stage founders are fair and balanced for the founders and the company's benefit. So feel free to test them against other terms that you may be offered!
Lastly, at least two caveats should be made (it wouldn’t be a proper intro to a legal document otherwise):
The term sheet is a template - not all deals will follow this exact setup (for example if we are co-leading an investment the board composition and investor majority requirements will differ, and the co-lead may have slightly different preferences to ours. Individual deal terms may also vary depending on the structure and share ownership of the founders, where the company is incorporated etc. This considered, our term sheet should not be seen as a “start of negotiations” when offered.
The term sheet template is always evolving and may vary over time.
In addition to the term sheet and the guide, we are looking into what other documents could be helpful for founders to get access to and look forward to sharing that going forward.
If you have questions or comments, or if you have a different opinion, feel free to reach out to me.