standardized seed financing docs for canucks

Some of my loyal readers may recall one of my posts earlier this year about the development of standardized seed financing docs in the US, where there were, at the time, about four different sets of docs which had been developed. It pointed to a more detailed article by Brad Feld. In any event, I had asked the question whether anyone was aware of a similar initiative in Canada but didn’t hear from anyone. Was actually going to try doing it myself, but free work that you give away sometimes goes quickly to the back burner (or rather off the stove altogether) when things get busy. Least that’s my excuse.

In any event, I was very happy to hear that someone in Canada has in fact undertaken this initiative. The folks at MaRS here in Toronto, and in particular Mark Zimmerman, have apparently developed a nice set of Canadianized templates, including a term sheet (.doc) a subscription agreement (.doc), articles of amendment (.doc) and a shareholders’ agreement (.doc), with a founder’s agreement and employment agreement in the work. They already have a template independent contractor agreement (.doc).

I haven’t had a chance to look at them, but if you happen to need a set of seed round docs, and you’re here in the great white north, I’d encourage you to check them out. The folks at MaRS deserve a pat on the back for taking the initiative.

Tip o’ the fedora to Jonathan Polak for bringing this to my attention.

standardized seed financing docs

Great article by Brad Feld on attempts to draw up standardized seed round funding documents. According to Brad there have now been four different sets of template documents developed in the US for use in seed round financings, each of which is a little bit different. He is now attempting to reach out to some US law firms in an attempt to come up with one single set for the US. Why? To reduce the inevitable haggling and negotiation over terms and reduce legal fees.

If you’re looking for first round financing, worth taking a look at just to get a sense of what sort of terms have achieved some measure of acceptance as being “market” (or at least that some VCs and entrepreneurs can agree on). That being said, if you’re in Canada, some of the things won’t quite work due to differences in the law.

Seems like a great idea. Anyone aware of an initiative like this in Canada?

vc monster

Saw a very interesting interview with a gentleman by the name of Rob Monster, who heads up Monster Venture Partners in the US. Mr. Monster is a well-heeled entrepreneur who has had considerable success as such. In the story, he outlines his particular investment strategy and the reasons for it:

In an interview this week, Monster said he plans to invest in about three to five companies each year in the healthcare services and online marketing sectors, with investments ranging in size from $250,000 to $1.2 million. That’s a hefty amount for an individual investor, but Monster – who has been investing since he was 12 years old and started working at the American Stock Exchange at 17 – is experimenting with a new approach he dubs “angel (investing) on steroids.”

“There is a middle ground between angel investing and venture investing and that sweet spot is woefully underserved,” said Monster.

As well as his perception of the existing VC market:

MONSTER: “Venture has earned, deservedly, a bad rap for being not forward looking in its approach to creating value in partnership with the entrepreneur. (Venture capitalists) have become short sighted … and tend to design financing structures in a way that biases toward preferences that are not aligned with the objectives of the common shareholders. And they can optimize certain outcomes in favor of the preferred shareholder, none of which, per se, is wrong. But from the standpoint of the entrepreneur they have figured it out…. Entrepreneurs are kind of backlashing a little bit… There is now an accountability for VCs to behave and to follow through on their commitments of being a partner of building a company. But a lot of times VCs get involved and say they have all of these strategic relationships and will make all of these introductions and then it doesn’t happen. This is the universal rant of most entrepreneurs that have interacted with VCs.”

MVP plans to invest through simple common shares, rather than the typical preferred shares with minimum returns and liquidation preferences, anti-dilution rights and so on. His reasons:

“Whatever happened to investing and being right there in the trenches with the fellow company builder, as opposed to baking in a preference whereby I can win and you can lose? My personal view is that the guys who back a company have a responsibility to help the company be successful.”

I recall giving a speech (an admittedly poor one to be perfectly honest) a couple of years ago about how the use of common shares seemed to be increasing as a financing vehicle for not only angel type rounds, but also early stage VC rounds. It didn’t quite ring with some of the VCs that were also presenting, so its interesting to now see a fund specifically and deliberately adopting common shares as its primary investment vehicle.

I’ve had the pleasure of some (very limited) interaction with MVP – quick, straightforward and candid. However, he’s not without his detractors (see for example some of the rather stinging comments in the above article). It will be very interesting to see how things work out.