misterb&b hits the equity crowdfunding trail to expand into hotels

Homosexuality is illegal in a third of the counties on this planet; in eight countries it is punishable by death. In the febrile atmosphere of today’s politics, hate-crime incidents in the U.S. increased by 17 percent from 2016 to 2017, according to the FBI.

More than 20 of those incidents were crimes against an individual’s sexual orientation — the largest increase since 9/11. Similar hate-crime statistics have increased in the U.K. and several other western countries.

It’s strange and saddening to think that men, women and gender non-conforming people who “travel while gay” are now in a more dangerous — and potentially life-threatening — situation around the world, despite us being well into the 21st century.

The key to the situation is knowing whether the place you’re staying will be welcoming or not. There are many incidents where, at hotels, gay travelers have been rejected or forced to book separate rooms, and had to fall back on third-party, unverified, user-generated reviews.

Now, misterb&b, the short-term rental marketplace aimed at the gay community, has a simple solution. Customers can book an entire home or rent a private room at the home of a gay or gay-friendly host, with many located in gay-friendly neighborhoods. The startup competes with more home-spun sites like “Gay Home Stays,” however, misterb&b has already raised substantial amounts in VC.

The startup graduated from the 500 Startups accelerator and has raised US$13.5 million from institutional investors like Project A and Ventech, and from angels like Joel Simkhai (founder of Grindr, which sold for US$300 million). The marketplace now has 310,000 hosts in more than 135 countries, and claims to have 30 percent revenue growth YoY; with 60 percent of the business done organically by repeat customers.

Indeed, misterb&b has now raised more than half a million dollars inside a week via Wefunder to fund its expansion. This will allow guests, hosts and the public to invest in the company’s push to launch its services into the hotel sector.

Investors are buying into a lucrative market. The niche of global gay tourism is estimated to be a $100 billion market, while gay people travel twice as much as other travelers. Its fundraising may also benefit from the influx of new tech millionaires being created by the upcoming IPOs of Uber, Lyft, Postmates and Airbnb.

CEO and founder Matthieu Jost says he wants to “build equality into the sharing economy and give back to a community that’s been historically economically marginalized,” providing its community “with the power of part ownership of the company.”

The idea for starting misterb&b was first conceived in 2013 after he had a negative experience while traveling with his partner and didn’t feel welcome by his host. “Six years ago, my partner and I traveled to and booked a room in Barcelona through a third-party rental website,” he told me via email.

“Unfortunately, when we arrived there, we were faced with a host who was very much homophobic and asked me if we were seriously going to share a bedroom. This was a very sad thing to have to face. Straight, hetero folks never have to worry about something so humiliating as this while on a lovely vacation; they will never have to think about it or prepare for it.”

“When I returned home I felt dejected, but I felt I had do something to solve this horrific problem — yet common fear — that our community faces. I don’t want my community to be afraid of traveling anymore,” he said.

“We are reaching out to the most passionate people in the community: our hosts and our guests, as well as LGBTQ allies,” said Jost. “We want to provide the opportunity to financially benefit from our successes,” he added.

The crowdfunding is for a new selection of gay-friendly and gay-welcoming hotels that have been selected by the company’s editorial team for their quality, exclusive and verified reviews from LGBTQ travelers. The idea is that travelers will also be able to connect with each other to explore the city together — especially because there’s safety in numbers.

Lyft’s driver wage lawsuit in NYC continues

As Lyft gears up to list its stock on the NASDAQ, the transportation company is facing ongoing litigation regarding driver wages in New York City. Today, a judge denied Lyft’s motion for an injunction blocking the recent ruling that sets a minimum wage for drivers. Still, the judge said she’ll think it over and file a written ruling in the next 30 days. This comes shortly after a number of drivers protested Lyft’s lawsuit against the city of New York earlier this morning.

“We are pleased the judge denied Lyft’s motion to block the wage protection rules for now and we hope she will uphold the city’s rules in her written decision,” Independent Drivers Guild member and Lyft driver Tina Raveneau said in a statement. “Eighty thousand New Yorkers serve as professional drivers for apps like Lyft and we deserve the protection and the dignity of a livable minimum wage. It is like a punch in the gut to us, the drivers who helped build this company, that Lyft stood in court suing to block higher wages at the same time as they moved toward an IPO at a $23 billion valuation. We are finally making more than we have in years thanks to the new pay rules, but Lyft wants to bring it back to the way it was before, poverty wages.”

Lyft filed the lawsuit earlier this year, arguing the new rules give an advantage to Uber, will reduce driver earnings and exacerbate congestion. At the time, Lyft said its suit was “not directed at the law passed by New York City Council, but rather at the TLC’s complex formula for implementation.” Lyft is a proponent of a weekly pay standard but argues the TLC’s approach does not take into account things like drivers who use multiple apps and fluctuating demand.

“We support the New York City Council’s minimum earnings goal, but oppose the TLC’s specific rules because they actually hurt earning opportunities for drivers, and provide advantages to certain companies over others,” Lyft spokesperson Campbell Matthews said in a statement. “We appreciated the opportunity to make our case in court today, and look forward to the judge’s forthcoming ruling.”

The suit came after the NYC Taxi and Limousine Commission in December approved new rules to offer a minimum hourly wage of $17.22 (after expenses) to drivers who work for ride-hailing companies like Uber, Lyft, Via and Juno. The two-year campaign for minimum wage was spearheaded by The Independent Drivers Guild, a labor organization that advocates for drivers. The rules require companies to pay drivers according to a formula based on mileage, time and utilization rate (average percentage of time drivers have passengers in their cars).

Lyft has recently said that it is committed to increasing the earnings of drivers and supports the NYC council’s minimum earnings goal. But it filed the lawsuit, Lyft said in a recent blog post, “to correct the flawed implementation of the law by NYC’s Taxi & Limousine Commission.”

These rules legally went into effect in February. Since then, Lyft says there has been a negative impact on driver earnings. That’s because, Lyft says, the cost for passengers increased 24 percent, which led to rides dropping 26 percent and driver earnings dropping 15 percent. Lyft had to then take “action to stabilize the market largely through the use of passenger discounts. We won’t do this forever, but knew it was important for both the driver community and Lyft while the lawsuit progressed.”

Kevin Tsujihara is stepping down as Warner Bros CEO

Kevin Tsujihara is leaving his role as chairman and CEO of Warner Bros. Entertainment.

He joined Warner Bros. back in 1994 and took charge of the film and TV studio in 2013. As part of broader leadership changes at WarnerMedia — which is now under the ownership of AT&T — his role was recently expanded to include Turner Classic Movies, digital-focused Otter Media and a new business unit that includes Warner’s properties for kids and young adults.

However, Tsujihara was also the subject of an exposé in the Hollywood Reporter earlier this month, which described his text messages with actress Charlotte Kirk. The two were apparently in a sexual relationship, and the messages show Kirk asking for Tsujihara’s help in landing film roles.

She was eventually cast in two small parts in Warner Bros. films — “How to be Single” and “Ocean’s 8.” Tsujihara’s attorney insisted that he had “no direct role” in Kirk’s hiring on these films.

In a memo to sent to Warner Bros. staff, Tsujihara said, “After lengthy introspection, and discussions with [WarnerMedia CEO] John Stankey over the past week, we have decided that it is in Warner Bros.’ best interest that I step down as Chairman and CEO … The hard work of everyone within our organization is truly admirable, and I won’t let media attention on my past detract from all the great work the team is doing.”

The company has not yet announced a replacement.

Trump’s views about ‘crazy’ self-driving cars are at odds with his DOT

President Donald Trump is an automated-vehicle skeptic, a point of view that lies in stark contrast with agencies within his own administration, including the U.S. Department of Transportation .

According to a recent scoop by Axios, Trump has privately said he thinks the autonomous-vehicle revolution is “crazy.” Trump’s point of view isn’t exactly surprising. His recent tweets about airplanes becoming too complex illustrates his Luddite leanings.

Airplanes are becoming far too complex to fly. Pilots are no longer needed, but rather computer scientists from MIT. I see it all the time in many products. Always seeking to go one unnecessary step further, when often old and simpler is far better. Split second decisions are….

— Donald J. Trump (@realDonaldTrump) March 12, 2019

The interesting bit — beyond a recounting of Trump pantomiming self-driving cars veering out of control — is how his personal views compare to the DOT.

Just last week during SXSW in Austin, Secretary of Transportation Elaine Chao announced the creation of the Non-Traditional and Emerging Transportation Technology (NETT) Council, an internal organization designed to resolve jurisdictional and regulatory gaps that may impede the deployment of new technology, such as tunneling, hyperloop, autonomous vehicles and other innovations.

“New technologies increasingly straddle more than one mode of transportation, so I’ve signed an order creating a new internal Department council to better coordinate the review of innovation that have multi-modal applications,” Chao said in a prepared statement at the time.

Meanwhile, other AV-related policies and legislation are in various stages of review.

The DOT’s National Highway Traffic Safety Administration (NHTSA) announced Friday that automated-vehicle petitions from Nuro and General Motors are advancing to the Federal Register for public review and comment.

The parallel viewpoints have yet to collide. There’s no evidence that Trump’s personal views on autonomous-vehicle technology has been inserted into DOT policy. Of course, that doesn’t mean it won’t.

AV companies are hip to this eventuality and are taking steps now to educate the masses — and Trump. Take the Partners for Automated Vehicle Education (PAVE) coalition, as one example. PAVE launched in January with a founding group that included a number of major automakers, technology companies and organizations with a stake in autonomous vehicles, including Audi, Aurora, Cruise, GM, Mobileye, Nvidia, Toyota, Waymo and Zoox to spread the word about advanced vehicle technologies and self-driving vehicles. Their message: This tech can transform transportation and make it safer and more sustainable.

Waymo has also teamed up with AAA on a public education campaign to spread the word about autonomous-vehicle technology and how it could impact safety and help people get around. The partnership, announced recently, is with AAA Northern California, Nevada & Utah (AAA NCNU), a regional organization that oversees operations in seven markets, including well-known hubs of autonomous vehicle development such as Arizona and California.

Y Combinator bets on the booming podcast industry

Podcasts are exploding in popularity and Y Combinator, the startup accelerator known for its long list of unicorn graduates, is throwing its support behind a business tackling the podcast monetization problem. Among its latest and largest-ever cohort is Brew, a subscription-based app complete with original content.

Though Brew’s founders, Jijo Sunny, Madhavan Ramakrishnan, Aleesha John and Joseph Sunny, call Brew the “Netflix for podcasts,” the app differs from Luminary, which made headlines with the same tagline and a $100 million round earlier this month. Luminary, which hasn’t yet launched, will similarly operate under a subscription model, charging $8 a month for access to its podcasts. Instead of opening its platform to creators of any stature, the business is striking deals with established voices in the podcast industry, like Guy Raz of “How I Built This,” Adam Davidson of “Planet Money” and celebrities Trevor Noah and Lena Dunham.

Brew, on the other hand, charges listeners $5 per month for access to a different demographic: upstart podcasters and rising stars alike. In other words, if you and your mom wanted to start a podcast — and get paid — you can sign up on Brew and instantly start raking in cash. That is, if you’re garnering an audience of listeners; Brew pays its creators based on their number of unique listens.

The founding team behind Brew, a startup tackling the podcast monetization problem.

“Podcasts, by nature, have a low barrier to entry and that’s the best thing about podcasts, right?,” Brew chief executive officer Jijo Sunny tells TechCrunch. “Anyone anywhere can set up a podcast. To be a Netflix for audio, it has to be for all creators, not celebrities like Trevor Noah.”

The app officially launched in the app store last week with several original ad-free shows, including original content from YouTubers Boogie2988 and Jack Vale, who boast a 4.5 million and 1.5 million following on YouTube, respectively. Next month, Brew will make its platform available for all podcasters to upload shows.

“Our vision is to help millions of creators earn a living doing what they love,” Ramakrishnan tells TechCrunch.

The startup’s long-term vision includes incorporating a tipping feature, much like Himalaya, another podcasting business that recently secured a $100 million check. Himalaya allows listeners to send micro-payments to creators to help subsidize their ad-based income.

Later, Brew plans to allow podcasters to operate online stores within the app, so they can earn additional money through merchandise sales. Live podcasts, publishing and production tools are also on the roadmap.

Podcast startups are taking off thanks to support from venture capitalists, but the people behind the content still struggle to earn a solid paycheck. Justine and Olivia Moore of CRV, an early-stage venture capital firm, say podcasts monetize at only a penny per listener hour, on average. Podcasting, in other words, makes 10x less money per hours consumed than radio, TV, magazines or any other major content medium. Meanwhile, 73 million people are enjoying podcasts every month, per Edison Research, and some 15 billion episodes are downloaded each year.

It’s clear there is an untapped opportunity to help content creators get rich. The Brew team’s experience — they previously built Buymeacoffee.com, a tipping platform for artists that has funded 40,000 people to date — coupled with VCs excitement for the growing medium puts Brew on a solid path for growth.

Brew’s team is originally from Kerala, India but plans to permanently set up shop in San Francisco. They’ve raised a total of $400,000, including Y Combinator’s $150,000 check. CrunchRoll founder Kun Gao and Teachable CEO Ankur Nagpal are amongst its early backers.

Brew, alongside some 200 other startups, will pitch to investors at YC Demo Days later today and tomorrow.

No Man’s Sky has a big new update due out this summer

After a conspicuous stretch of silence ending with a mysterious teaser tweet on Thursday, No Man’s Sky creator Sean Murray revealed that another major free update is on the way. The new content, which is the first since last year’s Visions update, will hit the massive space exploration game this summer.

The bundle of new content, called No Man’s Sky “Beyond,” will tie together three different updates, though Murray is only giving up the details of one so far. The one we know about is something that Murray is calling “No Man’s Sky Online” which “includes a radical new social and multiplayer experience which empowers players everywhere in the universe to meet and play together” and weaves together three standalone updates into “a vision for something much more impactful.”

No Man’s Sky BEYOND, a major free chapter, coming Summer 2019.

With three updates in one:
1) No Man's Sky Online
2) ?
3) ?

We're working out butts off on something special
More Info soon ?https://t.co/YtKimYyj6U pic.twitter.com/Txi8orUIs9

— Sean Murray (@NoMansSky) March 15, 2019

The short preview video doesn’t reveal much, but it shows a ship we haven’t seen before in what looks like either a reimagined space station (that would be nice!) or some kind of brand new multiplayer hub area.

Murray emphasized that the multiplayer update wouldn’t add things from other major multiplayer games like microtransactions or subscriptions and that he has no intention of turning No Man’s Sky into an MMO. (Still, if a lot of people are playing online together in a massive world, isn’t it uh, kind of an MMO?) The blog post noted that the team would release more details on the other two big pieces of new content in the coming weeks.

“These changes are an answer to how we have seen people playing since the release of NEXT, and is something we’ve dreamed of for a long time,” Murray added.

After a very rough launch and its accompanying critical lambasting in 2016, No Man’s Sky’s team has consistently added huge free content updates to the game. That dedication to building out the world the development team initially promised has brought “millions” of new players into the fold and inspired a thriving online and in-game community.

That community will be happy to hear that according to his latest blog post, Murray doesn’t intend to walk away from the game any time soon.

XGenomes is bringing DNA sequencing to the masses

As healthcare moves toward genetically tailored treatments, one of the biggest hurdles to truly personalized medicine is the lack of fast, low-cost genetic testing.

And few people are more familiar with the problems of today’s genetic diagnostics tools than Kalim Mir, the 52-year-old founder of XGenomes, who has spent his entire professional career studying the human genome.

Ultimately genomics is going to be the foundation for healthcare,” says Mir. “For that we need to move toward a sequencing of populations.” And population-scale gene sequencing is something that current techniques are unable to achieve. 

“If we’re talking about population scale sequencing with millions of people we just don’t have the throughput,” Mir says.

That’s why he started XGenomes, which is presenting as part of the latest batch of Y Combinator companies next week.

A visiting scientist in Harvard Medical School’s Department of Genetics, Mir worked with the famed Harvard professor George Church on a new kind of gene sequencing technology that promised to conduct sequencing at higher speeds and far lower costs than anything that was on the market.

The costs of sequencing a genome have come down significantly in the 19 years since the Human Genome Project successfully completed its project for $1 billion.

These days, gene sequencing can take a couple of days and cost around $1,000, Mir says. But with XGenomes, Mir hopes to drive the cost of testing down even further.

“We developed a way where we’re sequencing directly on the DNA where we’re not manipulating it except for opening up the double helix,” says Mir. 

Running a startup focused on conducting gene sequencing at population scales is not where Mir thought he’d be when he was growing up in Yorkshire in Northern England. “When I was in school there, I was not into science or tech. I was interested in literature,” he recalls.

That changed when he read Aldous Huxley’s Brave New World and began thinking about the implications of genetic manipulation that the book presented.

Mir went on to study molecular biology at Queen Mary College and upon graduation worked in a biotech company in the U.S.

After returning to England to complete his doctorate in the mid-90s, Mir worked with the geneticist Edwin Southern on the foundational science that now form the core of testing technologies like 23andMe, Illumina, and Affymetrix.

Xgenomes technology works by unzipping strands of DNA and then sequencing the strands concurrently.

I like to think of the genome as a book. The genome has chapters and the chapters could be the chromosomes,” says Mir. “Current technologies read it letter by letter. [But] we’re recognizing words.”

The company is able to accomplish this feat by using optical imaging technologies. Samples are treated with reagents that are then excited by lasers. XGenomes tech then “reads” the bits of DNA that are highlighted and identifies them.

Using this new tech, Mir thinks he can ultimately sequence a full genome in one to two hours and for as little as $100.

That would be a sea change in the way that testing is conducted and could bring about the rapid throughput of sequencing that Mir says is needed to make the vision of truly personalized medicine a reality.

Shiok Meats takes the cultured meat revolution to the seafood aisle with plans for cultured shrimp

Rising consumer interest in alternative proteins and meat replacements has brought hundreds of millions of dollars to companies trying to grow or replace beef or chicken, but few companies have turned their attention to developing seafood alternatives.

Now Shiok Meats is looking to change that. The company has raised pre-seed financing from investors like AIM Partners, Boom Capital, and Ryan Bethencourt and is now part of the recent Y Combinator cohort presenting next week.

Co-founders Sandhya Sriram and Ka Yi Ling are both stem cell scientists working at Singapore’s Agency for Science, Technology and Research who decided to leave their cushy government posts for life in the fast lane of entrepreneurship. 

The two have set themselves a goal of creating a shrimp substitute that would be similar to what’s typically found in the freezer section of most grocery stores — and a minced shrimp-replacement for use in dumplings.

There’s a huge market for seafood across the globe, but especially in Asia and Southeast Asia where crustaceans are a huge part of the diet. Chinese consumers alone account for the consumption of some 3.6 million tons of crustaceans, according to a 2015 study from the Food and Agriculture Department of the United Nations .

Shrimp cultivation as it stands is also a pretty dirty business. The industry is constantly being criticized for poor working conditions, unsanitary farms, and ancillary environmental damage. A blockbuster report from the Associated Press revealed instances of modern slavery in the Thai seafood industry.

“We chose to start with shrimp because it’s an easier animal to deal with compared to crabs and lobsters,” says Shriram. But the company will be expanding its offerings over time to those higher-end crustaceans.

Right now, the focus is squarely on shrimp. The company’s early tests have proved successful and the company estimates that it can make a kilogram of shrimp meat for somewhere around $5,000.

While that may sound expensive, it’s still much less than many of the lab-grown meat companies are pending to produce their replacement beef.

“We’re still relatively low compared to the other clean meat companies, which are still at hundreds of thousands of dollars,” says Ling.

The company is looking to bring its first product to market in the next three-to-five years and will initially target the Asia-Pacific consumer.

That means initially selling into their home market of Singapore and expanding into Hong Kong, India and eventually, Australia.

 

After Christchurch, Reddit bans communities infamous for sharing graphic videos of death

In the aftermath of the tragic mosque massacre that claimed 49 lives in Christchurch, New Zealand, tech companies scrambled to purge their platforms of promotional materials that the shooter left behind. As most of the internet is now unfortunately aware, the event was broadcast live on Facebook, making it one of the most horrific incidents of violence to spread through online communities in realtime.

As Twitter users cautioned others from sharing the extraordinarily graphic video, some Reddit users actively sought the video and knew exactly where to look. The infamous subreddit r/watchpeopledie was quarantined (making it unsearchable) in September 2018 but until today remained active for anyone to visit directly. The subreddit has a long history of sharing extremely graphic videos following tragic events and acts of violence, like the 2018 murder of two female tourists in Morocco.

After Thursday’s shooting, the subreddit became extremely active with users seeking out a copy of the video, which was shot in first-person perspective from a head-mounted camera.

After the flurry of interest, one the subreddit’s moderators locked the a thread about the video and posted this statement:

“Sorry guys but we’re locking the thread out of necessity here. The video stays up until someone censors us. This video is being scrubbed from major social media platforms but hopefully Reddit believes in letting you decide for yourself whether or not you want to see unfiltered reality. Regardless of what you believe, this is an objective look into a terrible incident like this.

Remember to love each other.”

Late Thursday, the subreddit’s members were actively sharing mirrored links to the Christchurch video, though they did so largely via direct messaging. After watching the footage, many users returned to the thread to express that the content was extremely disturbing and to caution even their most violence-hardened peers from seeking the video.

The subreddit remained active until some time late Friday morning Pacific Time, when Reddit banned the controversial community.

Reddit declined to provide details about its decision to ban the long-running community after this particular act of violence. “We are very clear in our site terms of service that posting content that incites or glorifies violence will get users and communities banned from Reddit,” a company spokesperson told TechCrunch. “Subreddits that fail to adhere to those site-wide rules will be banned.”

The subreddit’s many detractors consider the act of seeking and sharing such graphic depictions of death both inherently disturbing and disrespectful to victims and their families.

The subreddit is unquestionably grisly but remains surprisingly well-loved by some devotees, who insist that its graphic depictions of death are in fact life-affirming.

“Definitely saved me and helped me figure out I didn’t necessarily have tomorrow to get my shit in order,” one former member said in a thread discussing the since-banned community.

“Don’t think it is the kind of place to spend too much time in but, we all need reminders.”

Reddit banned the adjacent subreddits r/gore and r/wpdtalk (“watch people die talk”) on Friday as well.

Verified Expert Lawyer: Mital Makadia

Mital Makadia’s legal career began on the East Coast, with Big Law firms, but she moved into early-stage startup work with long-time Silicon Valley boutique Grellas Shah nearly a decade ago. She’ll work with companies on a range of usual startup issues, but she and the firm also focus on individual founder representation (when it comes to that).

As part of the interview below, we got into a conversation about contentious terms in term sheets — and she ended up writing a guest post for us about the biggest gotchas that she sees in Series A docs. Read up on her here, then go check out What To Watch For In A VC Term Sheet.


On the founder focus:

“We approach the practice with a view to protecting the founders. So we’re not looking to please the VCs. And if that means reviewing the transaction a little bit differently then what the investors are used to, that’s fine by us. That’s pretty much our philosophy.”

“Mital has an amazing ability to analyze complex issues and, not only explain them clearly, but also give us spot-on recommendations on what to do next to keep the company moving.” Bryant Lee, San Francisco, cofounder and CEO, Cognition IP

On the different perspective:

“For me, I have been through enough financing rounds to know what VCs tend to push for and what’s ‘market’ at a given point in time. But just because a provision might be one my client will likely have to give on, depending on negotiating leverage, I make sure my client understands how it impacts the company and its founders. I don’t simply gloss it over as “market.” And sometimes in those conversations, I suss out legitimate concerns from clients that we can creatively address. But that requires you to have a founder hat — not a VC hat – on when you are reviewing a term sheet.”

On second looks:

“Now, we have a lot of clients who come to us, whether they’re going through an M&A or whether they’re incorporating or whether they are going through a financing round term sheet who may have a lawyer representing the company, but who wants our advice in protecting the founders.”

Below, you’ll find founder recommendations, the full interview, and more details like their pricing and fee structures.

This article is part of our ongoing series covering the early-stage startup lawyers who founders love to work with, based on this survey and our own research. The survey is open indefinitely so please fill it out if you haven’t already. If you’re trying to navigate the early-stage legal landmines, be sure to check out our growing set of in-depth articles, like this checklist of what you need to get done on the corporate side in your first years as a company.


Full Interview:

Eric Eldon: I would love to hear about how you got into working with startups, given your very different focus earlier in your career.

Mital Makadia: Actually, I didn’t start my legal career working with startups. After law school, I did general corporate work at large firms in New York and DC. That feels like a lifetime ago.

I eventually moved out to the West Coast when I got married and came across Grellas Shah when I started looking for a job here. I can’t say my goal was necessarily to work with startups at that point. But I loved this practice from day one.

Of course, I immediately loved working with entrepreneurs. The brilliant new ideas, enthusiasm, optimism, work ethic, and ambition is infectious.

But a huge part of what I have loved about this practice is working with and learning from our firm’s founder, George Grellas. George has been working in Silicon Valley since 1983 and has really seen the ups and downs in the tech industry. Largely due to his reputation as a sharp yet practical startup attorney, our firm has built an enviable client base, which has been an ideal platform for me to launch my own career in the startup world.

What to watch for in a VC term sheet

Mital Makadia
Contributor

Mital is a partner at Grellas Shah, focusing on representing tech startups and startup founders. She provides counsel on a variety of corporate and transactional matters and negotiates and structures equity financings, M&A transactions, and commercial and intellectual property transactions for her clients.

When startup founders review a VC term sheet, they are mostly only interested in the pre-money valuation and the board composition. They assume the rest of the language is “standard” and they don’t want to ruffle any feathers with their new VC partner by “nickel and diming the details.” But these details do matter.

VCs are savvy and experienced negotiators, and all of the language included in the term sheet is there because it is important to them. In the vast majority of cases, every benefit and protection a VC gets in a term sheet comes with some sort of loss or sacrifice on the part of the founders – either in transferring some control away from the founders to the VC, shifting risk from the VC to the founders, or providing economic benefits to the VC and away from the founders. And you probably have more leverage to get better terms than you may think. We are in an era of record levels of capital flowing into the venture industry and more and more firms targeting seed stage companies. This competition makes it harder for VCs to dictate terms the way they used to.

But like any negotiating partner, a VC will likely be evaluating how savvy you appear to be in approaching a proposed term sheet when deciding how hard they are going to push on terms. If the VC sees you as naïve or green, they can easily take advantage of that in negotiating beneficial terms for themselves. So what really matters when you are negotiating a term sheet? As a founder, you want to come out of the financing with as much overall control of the company and flexibility in shaping the future of the company as possible and as much of a share in the future economic prosperity of the company as possible. With these principles in mind, let’s take a look at four specific issues in a term sheet that are often overlooked by founders and company counsel:

  • What counts in pre-money capitalization
  • The CEO common director
  • Drag-along provisions
  • Liquidation preference.

What counts in pre-money capitalization