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- ♞ Using Standard Contracts/Agreements
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I have long been outspoken against using pitch deck templates, but today, I want to address the use of standard contracts and agreements when fundraising.
A common question I get is whether founders should hire a lawyer for custom legal agreements or use templates. To the surprise of many, my advice is often that unless you are doing something very specific, the best course of action is to use a template and then have it reviewed by a lawyer. There are numerous reasons for this, but the primary one is how it helps you raise money. Let’s dive into that…
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One of the biggest risks that VCs need to take is trusting the legal structure of a company. We’ve likely all seen the Social Network and how a poor founder’s agreement or startup incorporation process can cost a company millions or billions of dollars down the line. Investors are taking the risk that a substantial portion of the money they invest in your business could disappear if you have legal issues.
It is for this reason that using templated agreements can actually increase your chances of raising. If you go to raise a Series A and your Seed round was raised using a YC SAFE, then every VC knows exactly the terms, how it operates, and the risks involved; they can feel comfortable making decisions knowing their exposure. The same is true of having advisors using the Founders Institute Advisor Agreement, its a document VCs have seen before and they know how it works.
When you start to use overly customized documents, VCs often need to pay to have their own lawyers vet them in due diligence, this increases their costs and time to make an investment both of which work against you and can cost you a deal. They also need to accept a risk profile different from what they are regularly accustomed to, which could scare them away.
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