Angels and micro-VCs are an increasingly important part of the funding landscape for many of our clients, particularly those in the web and mobile application sectors. One side effect of all these new investors has been a proliferation of new variations of the standard legal documents presented to start-ups. Some good, but many bad.
The start-up community in the US responded to this same trend by rallying around a series of standard, open source, vanilla investment documents. Ted Wang of Fenwick & West, a Silicon Valley law firm was the first advocate of the new model that I’m aware of with a post in VentureBeat. He eventually created the “Series Seed” documents that are used by many leading angels including Ron Conway and Mike Maples. Others also made their documents publicly available, including Techstars, YCombinator and Founder’s Institute. All with the goal of simplifying the fund raising process for investors and for start-ups.
A month or so ago I asked colleagues here at MaRS if a similar set of standard templates had been made public in Canada. We didn’t know of any that were easy to download as a jumping-off point. We did some digging, reviewed the US sample documents, best practice recommendations posted on the National Angel Capital Organization wiki and a large number of financing documents used here in Ontario to paper deals. From those examples, we’ve developed a set that work under Canadian law and mirror the US seed recommendations. Here they are.
Our goals with the documents were the same as Ted’s. We wanted them to be:
- Fair, favouring neither the investors nor the founders
- Simple and short, so that entrepreneurs and seed investors can understand them with a minimum of time and effort
- Fill-in-the-blanks templates, intended to be filled in and reviewed by the parties and their counsel, with any redrafting focused on terms unique and specific to the deal
- Term Sheet which defines the overall terms of the deal
- Subscription Agreement that details the terms of the sale of shares to the new investors and the representations each party is making to other
- Articles of Amendment which add the new Preferred Shares that the investors are buying to the corporation’s capital structure
- Shareholder’s Agreement that defines the rules for voting and selling the new and existing shares of the corporation
We’re working on a few other related agreements to complete the package:
- Founder’s Agreement which defines such things as the relationship between the founders, transfer of IP to company and what happens if a founder leaves
- Employment Agreement (see our Independent Contractor Agreement template), for new and existing employees, ensuring that IP is owned by the company and that there is an appropriate non-compete agreement among other provisions.
We’d welcome suggestions for any you think we’ve missed. And we’d also like you to comment on these templates too — let us know how they can be improved.
We hope these templates will simplify things for investors, founders and their respective legal advisors. We’re sure they’ll generate some discussion and debate and we’ll incorporate the best suggestions in version 2.0.
Mark advises entrepreneurs in the information technology, communications and entertainment practice at MaRS. He specializes in B2B enterprise software, SaaS business models as well as security and privacy.
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