Some Angel Groups are Beginning to Use Standardized Term Sheets

December 21 2009 No Commented

Some Angel Groups are Beginning to Use Standardized Term Sheets

Until the mid-‘90s, the quality and consistency of term sheets offered by angels to entrepreneurs varied considerably.  Some were sophisticated while most were not – as if written on the back of an envelope.  Angels and entrepreneurs did other deals with only a hand-shake – no term sheet at all!

If all goes well in a deal and no subsequent investment is required, the back of the envelope or even the hand-shake may prove sufficient.  But, don’t bet on it!  Many things can and do go wrong.  When they do, the term sheet and investment agreements prove most valuable to investors and entrepreneurs alike.

Perhaps a decade ago, many US angels began using the standardized term sheet template (link) developed by the US National Venture Capital Association (NVCA) as a starting document for angel deals.  It is surely complete, thorough and based on best practice among NVCA members.  Furthermore, the document offers a variety of options in many terms, which is useful in negotiations between angels and entrepreneurs.  But, the document is very long, detailed and includes many terms that, frankly, are beyond the needs of most angel deals.  I have been looking for a simpler version – a high-quality angel term sheet template for a preferred stock transaction. 

I hear that some angel groups are developing standardized term sheets for their investors.  In particular, I recently read a term sheet template developed by Dan Rosen, chair of the Alliance of Angels in Seattle, for preferred stock deals (AoA “Preferred Light” Term Sheet Template).  It is relative short and yet quite complete.  I like it and plan to use this document as a template for future deals I invest in.  Dan has graciously agreed to share this document with all who are interested.  If you’d like a copy, send me an email via the form on my “Contact Us” page.

It’s a GREAT time to be an angel.  Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence