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09/02/2010

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Dam00n

Looks like the Series Seed IRA (v 2.0) link and Series Seed Term Sheet (v 2.0) link go to the same doc. Is that correct?

Alexissmirnov

Ted,

Thank you for summarizing the advantages of Series Seed over capped convertibles.

Have you had anyone from Canada use these documents for financing a Canadian (Quebec) entity? Can you comment on applicability of these documents in this context?

If this version isn't applicable, what do you suggest to a Canadian entrepreneur seeking funding from US angels?

twang

I've not had anyone from Canada and I don't know enough about Canadian law to have an informed opinion as to how they would work. I do, however, think that a good Canadian business attorney could use these documents as a source and fairly quickly modify them to meet the needs of Canadian law. That would be my suggestion.

Bill Burnham

First off, I think this is a great idea and a great service to both entrepreneurs and investors to effectively "open source" a robust set of very basic preferred financing docs.

One issue I do have with the term sheet though is the provision for $10K in investor legal expenses. Now I know this is likely just a placeholder and people can change it to whatever they want, but I've done a lot of angel deals and never seen one in which the angels get investor expenses. I've also done "Series Seed" deals, but in those cases company counsel has drafted the docs for a few K.

I think by putting this provision in the term sheet you are conferring legitimacy on it and making it seem normal and/or acceptable practice for angels to ask for $10K to cover their seed investing expenses.

This is not normal nor is it, in my opinion, acceptable or for that matter practical given that there rarely is a lead investor counsel in an angel round and if there is one it's likely not a real angel round but an institutional round anyway.

If you need counsel to review these elegantly streamlined docs you shouldn't be doing angel deals in the first place.

William Carleton

Ted, I understand why taking down the prior versions could eliminate confusion, but I think it would still be helpful to have them archived somewhere as a reference for those of us who have used them and want to be able to refer folks to an authoritative place to check the integrity of the forms, run redlines against the source forms, etc.

Ted Wang

Good point. I'll put them up in an archive.

Brian

Ted-

I read through the docs, well done. A question I have is why is there no anti-dilution protection for the investor? I completely understand not wanting to put in an onerous full ratchet but the fact that there is no weighted average ratchet seems a bit bizarre. I have a hard time believing an early investor wouldn't inset some anti-dilution provision. Your input is appreciated!

Brian

REDACTION: Let me re-track my statement, 1) I tend to think in with a late stage investor hat on (wrongly in many cases), and 2) I found your justification for leaving those terms out, and it is a well justified position. Again, any addition points you have well not fall on deaf ears.

Ted Wang

Brian

Thanks for your comments. To make it clear, I don't have any problem with anti-dilution generally speaking and it is both standard and appropriate in a full blown Series A. In my experience, it is highly unlikely that this term will come into play in a Series Seed since the valuation is presumably very low. The basic Series Seed investment tests a hypothesis. If that hypothesis is correct, the company raises money at a higher valuation. If incorrect, it shuts the doors. Given this background and the fact that a proper anti-dilution clause is lengthy, heavily negotiated and impossible for a civilian to read and understand, I thought it would be better to exclude.

Brian

Ted

We are in 'violent agreement' about your point on the necessity of anti-dilution provisions in early seed deals. Thanks for your contributions.

I'm generally curious about who you know has adopted these documents that you're aware of and what constructive feedback you've received that has been polar to your seed docs. I understand if you're unable to share those details.

Thanks again.

-Brian

Ted Wang

Brian

So a number of our firm's clients have used the documents (including Blippy and Civic Solar both of whom have done some media around it). Generally, I've not had any negative feedback on the Series Seed Documents themselves. Most of the comments are on the Blog. The lone criticism that I hear consistently is that convertible notes are preferable, which I tried to address in one of my earlier posts.

Thanks for your interest.

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