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Removing the Change of Control Provision from our Seed Deals

We founded True Ventures with the premise that we would create a firm that entrepreneurial founders could trust. As such, we consistently review what terms are appropriate for the size and stage of our investments into new companies.

Recently, based on internal feedback from our team and our founders, we have decided to change a key term around change of control in our seed investments.  The specific language for this is usually tucked into a longish paragraph about Protective Provisions which states that a change of control cannot occur without the consent of a majority of the Preferred stockholders.

At the earliest of stages when we have made only a small, seed stage investment, we believe that it is appropriate for founders to control the decision about the potential sale of their business.  Since launching True in 2005, we have never enforced this term nor have we ever planned to in our seed stage deals.

In keeping with that theme, we have decided to remove the “Change of Control” provision from our seed stage deals moving forward.  We believe that entrepreneurs are our customers, and we believe this small word change exhibits the much larger issue of mutual trust that our Founders and True maintain.

Comments

  • Can we get a quantitative definition of “seed?”

    All deals <$200k ?

    This could help you avoid the temptation of picking and choosing when you ask for the change of control term.

    And that way you'll never have to tell a company "we don't really view this deal as a "seed," more of a "pre-A" really" :)

    solsenNet

  • Nicely done.

    • by Lateef

    • on August 19, 2010

  • Yeah, because without some firm numbers, it’s a little unclear what I am being offered here in this post. It’s a little slippery.

    We’ll not include a specific term in privately negotiated contracts according to our discretion on what qualifies for such treatment (ie it’s our unbounded judgment if this is “seed” or not)??

    Not sure what this gets me.

    Sharp negotiators…

    solsenNet

  • Hi Scott,

    For us, Seed Deals are defined as between $200,000 and $600,000 of invested capital.

    Since day one, all of our docs are clean and simple: no tricks, no onerous voting provisions, no multiples on liquidation preference, no participation, no board control, yes generous founder vesting and yes ample acceleration for Founders upon change of control.

    One of our Founders eloquently told a roomful of our LPs that True “doesn’t do any of that sneaky VC sh%t.” … which is just another way of saying that we’re a VC firm that entrepreneurs can trust. :)

    • by adam

    • on August 19, 2010

  • Thanks Lateef!

    • by adam

    • on August 19, 2010

  • Well I, for one, am satisfied by this plain answer! It’s a straight shooter answer: no change of control term on all deals <$600k.

    Solid, I am glad I asked for clarification.

    solsenNet

    …but I'll admit I thought Lateef was giving me props :)

    Lateef, clarification ? :)

  • So for companies under $200,000 you will have this restriction?

    • by Manish M

    • on August 19, 2010

  • […] Removing the Change of Control Provision from seed deals (Source) […]

  • Ha! good catch. I was reading too quickly (I was in a meeting :) but I didn’t pick up on that distinction… Or I guess I thought that True Ventures doesn’t do deals <$200, because with the "Paul Graham" sized deal, and the "Ron Conway" sized deal firmly under $200k, I would say it is the very clear "common understanding" that a deal <$200k is a "seed" deal.

    Unless you want to start telling companies "We don't view this as a "seed" deal, more of a "pre-seed" really." :) (I will say that, I have heard the term "pre-A" on a few rare, and to paraphrase, decidedly "sneaky" occasions, I have never heard the term "pre-seed"!!)

    solsenNet

  • […] Removing the Change of Control Provision from seed deals (Source) […]

  • Hi Scott and Manish,

    We have not historically done deals below $200,000 (which is where the bottom of the bracket came from.)

    Deals below $200,000 would also be treated as seed deals – just like deals between $200,000 and $600,000.

    • by adam

    • on August 19, 2010

  • Well, this gives me some measure of hope that perhaps “transparent” VC is indeed possible.

    Maybe the back-and-forth here is a good indication of being on the bleeding edge of that transformation. This is complex stuff and it’s going to get a little messy when you bring it out from the dim closed boardrooms where it’s normally hashed out.

    Kudos.

    solsenNet

  • […] of the Silicon Valley firms, True Ventures, has removed this clause from their term sheets entirely:http://www.trueventures.com/blog…(Disclosure: True Ventures is an investor in Vurve.com)Insert a dynamic date hereCannot add comment […]

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