On walking away.
A founder describes a term sheet she ought not to sign. The counsel agrees, and explains why agreement is not enough.
FOUNDER"It is the only term sheet we have."/q:1
COUNSEL"And the worst of the ones you might have. Which is also worth observing."/q:2
FOUNDER"You think I should walk."
COUNSEL"I think you already have. You came here to find out whether you were permitted to."/q:3
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FOUNDER"They will say I am unreasonable. That a founder who turns down a lead in this market is not serious."/q:4
COUNSEL"Who is the 'they'?"/q:5
FOUNDER"The market. Other investors. The people on Twitter."
COUNSEL"None of whom will sit on your board, and none of whom will sit in the room when the next round is priced off this one."/q:6
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FOUNDER"Crito told Socrates to flee. Socrates would not. Is that the parallel you would like me to draw?"/q:7
COUNSEL"No. Socrates was right to stay because the city had been good to him for seventy years. This investor has been in your inbox for nine days. The asymmetry is instructive."/q:8
FOUNDER"So one may walk."
COUNSEL"One must, when staying would be agreement. Socrates said it is never right to do wrong, even in return. The smaller version is: it is never right to sign what you would not have written."/q:9
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FOUNDER"And if no other sheet ever comes?"
COUNSEL"Then you will have a smaller company, and your name on the cap table, and your evenings. Three things this sheet would have taken in exchange for a wire."/q:10
FOUNDER"You make it sound easy."
COUNSEL"It is easy. It is the day after that is hard. But the day after a bad signing is harder for longer."/q:11
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Coda. The founder walked. The lead, two weeks later, returned with a new sheet — quieter, with the liquidation preference where it ought to have been the first time. She did not sign that one either, but for better reasons. Six weeks after that, a different firm led the round.
— D. A., this 21st of June, MMXXVI.