On whether to sign.
A founder, having received a term sheet on Monday, asks her counsel whether ten days is enough to close. The counsel does not answer.
FOUNDER"We have a term sheet. The lead wants to close in ten days. Should I sign?"/q:1
COUNSEL"Have you modeled the conversion of each existing SAFE at the binding cap?"/q:2
FOUNDER"No."
COUNSEL"Then ten days is right. It will take eight to do the math, and two to negotiate what the math reveals."/q:3
FOUNDER"And if the math reveals nothing?"
COUNSEL"Then you will close on a deal you understand. Which is the only kind that survives the next round."/q:4
⁂
FOUNDER"The lead has done this before. They have a standard. Surely the standard is correct?"/q:5
COUNSEL"A standard is correct on average. Your cap table is a single observation."/q:6
FOUNDER"That is a very lawyerly answer."
COUNSEL"It is also, by accident, the correct one."/q:7
⁂
FOUNDER"They want a thirty-percent option pool, refreshed, on a pre-money basis. Is that standard?"/q:8
COUNSEL"It is standard for the lead. It is not standard for you. The two are different sentences."/q:9
FOUNDER"Explain."
COUNSEL"A pre-money refresh of the option pool is taken from the existing equity. Almost entirely yours. You will hand over twelve percent of your company before any of the new money is wired."/q:10
FOUNDER"They didn't say that."
COUNSEL"They didn't have to. It is what the document does."/q:11
⁂
FOUNDER"So we don't sign on Friday."
COUNSEL"We sign when we understand. The day on the calendar is the lead's preference, not your obligation."/q:12
FOUNDER"And if they walk?"
COUNSEL"A lead that walks because you asked them to wait eight days for the math is a lead you are better without."/q:13
FOUNDER"That is easy for you to say."
COUNSEL"It is. The reason it is easy is that it has been true every time I have said it."/q:14
⁂
Coda. The founder did not sign on Friday. She signed the following Tuesday, on terms 380 basis points better than the first draft. The lead did not walk. The lead was, on the second call, embarrassed.
— D. A., this 20th of June, MMXXVI.