One of the key take aways many Danish startups take back home to Denmark after a visit in Silicon Valley is the expression: Founder Friendly Terms and a founder friendly term sheet.
At the SCALEit program more than 165 Danish Startups have been exposed to and immersed into the Silicon Valley mindset and eco-system. One of the elements most startups mention as a true eye-opener and one of the main differentiators between Silicon Valley and the European startup scene is the perspective investors have on founders. Founders need to stay motivated.
Keeping founders motivated
Things have changed over the last couple of years and the founder friendly termsheet is becoming more and more popular. However, we still have a long way to go before Danish investors will have a similar view upon the terms founders are met with during a fundraising round.
Founder friendly terms make it interesting for founders to work crazy-hours and founders will not be completely diluted during follow up rounds.
A typical Venture Capitalist, even on Sand Hill Road, wont look for more than a 20% equity share – since higher percentages will de-motivate and dilute founders too early.
Many investors in Silicon valley have been founders themselves and know the importance of founder friendly terms in order to secure success for the startups they invest in.
This approach to investing is slowly but surely finding its way into the European investment scene. Let’s keep that movement going and make sure that founders are rewarded for the big risk they take in starting something new to "make dents" in the universe.
Founder un-friendly terms
Besides the typical "I want 51% and 3 Board Seats" approach there are other pitfalls to look out for:
Sam Altman, Y Combinator normally follows the founder friendly approach when he invests in startups. He points out some of the "red flags" every founder should be aware of when talking to new investors:
- The company should never pay for the investors legal fees. That is not in the best interest of the
- Always avoid complex deal structures. Keep it simple - especially in early stage investing.
If you want to learn more about founder friendly term sheets and the Silicon Valley mindset please reach out and let's talk.
If you want to self-study that is OK too and I'd highly recommend the book: Venture Deals, by Brad Feld and Jason Mendelson "Be smarter than your lawyer and venture capitalist"