GCVF Standard Terms & Reps for Investment Docs

Recently we realized that, along with most investors, we didn’t have a clear set of standard terms and reps that were easily sharable for founders we work with. By the time we get to final diligence and papering a deal, we like to have addressed the following items, and there is nothing worse than spending several cycles going back and forth on what are fairly common items in our business. That is the last thing either party wants!

We figured that it would be much easier for us to set expectations for founders (and their lawyers) and other potential co-investors of what we look for in all of our deal documents.

The below is by no means comprehensive or required for every single deal. It is just a quick laundry list of things that GCVF is looking for in *most* every deal we do. There will always be variations, exceptions, or additions. The Reps tend to be very practical diligence items, and some of the terms might be healthy negotiation points. This is at least a great starting point for conversation with founders that we believe is based on what we see as market-norms.

If you’re a founder we’re working with, please review this list, take the time to understand each item, talk to your co-founders, advisors or board members, etc. You can generally find these included in most startup proven templates; however most of this is listed in common legal/investor speak, so please don’t be afraid to ask us any questions before we get lawyers involved and it costs everyone more time and money!

If you’re an investor, perhaps this is a useful checklist for you to use as well when you enter into the term sheet or deal doc phase with any startup.

NOTE: This is not legal advice and we are not lawyers! Also, most of this is focused for an equity raise, so some of the terms might not be applicable if using a convertible note or something else.

GCVF Standard Terms & Representations

Standard Terms:

• C-Corp (unless otherwise discussed)
• Preferred Stock w/ 1X preference, non-participating
• Preferred Stock protective provisions: (i.e. unless majority of preferred approve, the company cannot affect a deemed liquidation event, amend the charter/bylaws in a manner that adversely affects the preferred, increase the authorized capital stock, increase the size of the board, or declare dividends, etc.)
• No “pay to play” clause
• Board observer rights (or a seat in some cases)
• Companies will reimburse GCVF for legal closing costs
• Major purchaser status and information rights and inspection rights
• Pro-rata rights
• Right of first refusal and co-sale rights
• Weighted broad base anti-dilution
• Drag along
• Closing process: explicit timeline and/or dollar amount (negotiated)

Standard Reps we ask companies to provide:

• Corporate power & qualification
• Capitalization/ownership table
• Certificate of good standing
• Valid issuance of shares
• Government and other required consents and filings
• Compliance with other instruments
• 1202b clause (QSBS)
• Financial Statements (need these to support the 1202 rep)
• Debt disclosure
• IP disclosure
• Lawsuit or litigation disclosure
• Authorization of individuals to act on behalf of entity
• Permits and liabilities
• Employee matters (to flush out any outstanding issues with co-founders/former employees who may have already bowed out but who are still owed something)
• Data Privacy: the Company is and has been in compliance with all applicable laws regarding data storage
• Material Agreements: Any agreements in excess of $25k should be disclosed
• Environmental and Safety Laws: (depending on the nature of the company’s business)
• Property (i.e. The property and assets that the Company owns are free and clear of all mortgages, liens, etc.)
• Insurance (fire, casualty and general liability)
• Tax Returns and Payments (i.e. There are no federal, state, county, local or foreign taxes due and payable by the Company which have not been timely paid)

In case this is all new to you, here is a good primer article that breaks down many of the above. Look for another blog post soon with links to the standard docs we prefer to use!

Together we can make the paperwork process much less painful!