Founder Friendly Term Sheets & Startup Contracts
Originally published: 08/05/2019 11:00
Last version published: 01/04/2020 15:23
Publication number: ELQ-95969-8
View all versions & Certificate

Founder Friendly Term Sheets & Startup Contracts

Addendum for term sheets, employment agreements, bylaws, etc. with favorable terms for entrepreneurs.

Founder Friendly Standard is a framework for determining if your startup investment deal is founder friendly. It can help entrepreneurs avoid disputes around voting rights, founder vesting, non-compete, and other factors that cause startup relationships to implode.

The document has 17 total provisions across 5 sections. Here are some of the juiciest ones:

- Founders get super-voting equity (24:1 votes).

- Option pools dilute all equity holders equally. Thanks to Sam Altman from YCombinator (another Eloquens author, see "Founder-Friendly Term Sheet") for sparking this idea.

- Company won’t agree to pay investors’ legal fees on any investment deal closed within first two years of operations.

- Company won't agree to arbitration with any investor or founder in any agreement signed within first two years of operations.

- Non-compete provisions can only be in active employee and contractor agreements, never in organizational documents. If founders are fired, they need to find work in their industries and keep their equity.

Use the Founder Friendly Standard when incorporating your startup and when negotiating organizational documents such as term sheets, stock purchase agreements, private placement memorandums (PPMs), and stock option plans with co-founders, angel investors, and venture capitalists.

IMPORTANT: Always make sure you have an attorney perform this work. You can find an attorney familiar with the Founder Friendly Standard on our website.

UPDATE ON 10/8/19 – Added a Word file to this package containing comparisons of Founder Friendly Standard with these popular agreements: 500 Startups KISS, Y Combinator Safes, NVCA legal docs, Gust Series Seed, Sam Altman Term Sheet, and Y Combinator Series A.

* Founder Friendly Standard was first published on Eisaiah Engel’s blog in November of 2017. This is not legal advice.

This Best Practice includes
1 Downloadable Term Sheet in Word, PDF, and PowerPoint formats; 1 Attorney Adjudication Form

Eisaiah Engel offers you this Best Practice for free!

download for free

Add to bookmarks


Further information

Transform any term sheet template or startup legal agreement into one that meets the Founder Friendly Standard.

Bootstrapped/lean startups with revenue and a long-term vision. Make sure you have an attorney perform this work.

Startups without revenue that require large amounts of capital. Or, startups who try to use the Founder Friendly Standard without hiring an attorney.

4.8 / 5 (30 votes)

please wait...