I came across a great post by Dave McClure about how the process through which you get to a signed termsheet is way too complex and I TOTALLY AGREE. His comments about VCs and lawyers needing to innovate and remove the reams of paper and make the terms simpler to understand are spot on. I wish that it would happen but I think that there are huge barriers.
The big problem is that the alignment of interests is really off. The level of complexity advantages both the VCs and the lawyers.
Dave talks about how VCs are advantaged over entrepreneurs because they do these transactions all the time while entrepreneurs only go through the process only once every 5-10 years.
The piece he didn't talk about is that lawyers are incented because they get paid hourly to make things complicated. They are also incented even when capped to show how good a job they do by generating reams of paper.
The stack of paper - It's impressive. You feel more justified paying your bill. Too bad its not useful.
For us the term sheet was fairly straightforward. The expensive (and slow) part was the definitive documents. Now it didn't help that we were trying to close over the summer. But we ended up with far more complex docs than a smallish series A should have.
Posted by: Erik Schwartz | September 26, 2007 at 07:29 AM