Controversial VC-rating site, TheFunded.com, has been annoying investors again, with a weekend announcement that they would collect and publish the terms of investment proposals made by VCs. The intention is to build a database of such "term sheets" so that entrepreneurs can compare notes and avoid being bamboozled by the supposedly increasing complexity of VC investment offers.
Before VCs panic and set upon TheFunded.com -- while instructing their lawyers to tighten the confidentiality provisions in their term sheets -- it's worth reading the fine print. TheFunded is proposing to anonymously collect actual investment terms in the market -- valuation, share type, liquidation preferences, anti-dilution type, exclusivity, etc. This is no different than the statistical reports periodically issued by law firms to show whether term sheets are trending more buyer- or more seller-friendly.
The investment industry should welcome efforts like these to standardise terms and make our process more transparent to entrepreneurs. Far too much time is spent in early deal negotiations overcoming the mistrustful reaction of entrepreneurs to what appear to be clever, opaque transaction terms. The more these terms get airtime, the easier it will be for entrepreneurs to understand why they're there and for the negotiations to focus on those that have a real, economic impact on either party.
Thanks to blogs and other Internet resources, we already have a much more open, transparent debate on terms than we did two years ago. There are great blogs devoted to demystifying the world of venture investing to entrepreneurs, including Brad Feld's Ask the VC, the more irreverent Venture Hacks and Term Sheet Hacks, and the indispensable US resource, StartupCompanyLawyer (would be great to get one of the European law firms to do something like this -- c'mon SJ Berwin, step up to the plate!).
So long as TheFunded's initiative protects the anonymity of specific investment offers, I don't see any issue here. Only investors who believe their competitive advantage lies in subterfuge through opaque terms need be worried, and to be honest I don't know
many any like that.