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.

wherefore art thou, shareholders agreement?

Most of you have already seen the news about eBay‘s claim again Craigslist reported in Wired and other places. Apparently, eBay is concerned about some action that the Craigslist folks took that diluted eBay’s holdings. Which left me scratching my head a bit, given the little I know about Craigslist, which is that I found it surprising that they would have sought financing (as I couldn’t see why they would want or need it given Craigslist particular approach to its site). However the Wired article explained:

EBay, the world’s largest online auctioneer, was an unsolicited suitor to quirky Craigslist in 2004. An unnamed former Craigslist shareholder sought out eBay and sealed a deal whose financial terms were never disclosed.

Ouch. Presumably, the folks at Craigslist either did not have that shareholder under a shareholders agreement, or they did, but it did not have provisions that would, for example, allow for the right to repurchase shares in certain situations, such as when the shareholder is thinking of selling to someone else, who might, for example, be a competitor, or become a competitor.

Which is why the first piece of advice I give to startups and other early stage companies is that they should be very, very, very careful when it comes to issuing stock or options. Its great that companies want employees and others to share in their prosperity as they grow, but very often what is overlooked is that shares (or stock as those Yanks call it) in addition to providing an economic benefit as they appreciate, also provides for a whole host of rights that you may or may not necessarily want to give out. And which don’t require a majority to exercise (but which can still be a royal pain to deal with), as eBay’s claim illustrates (I should emphasize that I’m not commenting on whether or not eBay’s claim has merit, but rather the circumstances that allowed it to happen in the first place).

Shareholders, even small shareholders, have the potential to cause a lot of difficuties for companies (particular smaller companies) through not only their voting rights, but also statutory rights, such as claims of oppression or the ability to require a company to be audited. For those considering option plans or share ownership plans, its usually a good idea to investigate alternative but equivalent forms of compensation (profit sharing, phantom stock) before going with option or share plans. And if even if you do decide on options or shares, please, please, please get a shareholders agreement in place – trust me, you won’t regret it.