A Fix for Post-Money SAFEs: The Math and a Redline

TL;DR: The default language of a Post-Money SAFE has the worst possible economics for founders in the vast majority of seed round contexts, because any future convertible rounds (that aren’t equity) force dilution entirely on the common stock (seed investors aren’t diluted at all – YC benefits significantly from this language in its own investments). A very small tweak to the language can save founders/common stockholders millions of dollars, and make the Post-Money SAFE fairer to the cap table.

Background reading: Why Startups Shouldn’t Use YC’s Post-Money SAFE

First, a very quick review of the high-level economic problem with the Post-money SAFE structure that YC promoted a few years ago; and which is only in recent quarters becoming more visible to founders as their seed rounds start to convert:

The stated value proposition of the post-money SAFE, relative to the traditional pre-money SAFE, was that it delivered investors far more clarity over how much of the cap table they were buying. If they put in $1 million on a $10 million post-money SAFE, they were buying 10% of the company today, regardless of what the current cap table looks like. This is actually a good thing. Clarity is great.

The hidden value proposition for investors of the post-money SAFE, and which has cost founders enormously by not understanding its implicationswas an extreme level of anti-dilution protection built into the post-money SAFE. Any SAFEs or notes that you issue after the post-money SAFE round, but before a Series A, do not dilute the investors; they dilute only the common stock (founders and employees). This is the case even if the 2nd or 3rd round of SAFEs is an up-round with a higher valuation cap.

This was and remains crazy, and totally unnecessary in light of the stated purpose of post-money SAFEs; which was for investors to know what they are buying on the day of their closing. When you buy equity you are able to calculate the ownership you are purchasing at closing, but equity rounds virtually never, not even in the most investor-slanted deals, have full anti-dilution protection for post-closing investment. Why should Post-Money SAFEs give investors that? They shouldn’t, and this was an egregious (but in my opinion, deliberately obfuscated) over-step in startup financing template design.

We posted here a very simple redline (in track changes) of what needs to be edited on YC’s post-money SAFE to eliminate the terrible anti-dilution mechanics. Again, it’s worth emphasizing that this redlined safe still gives investors the stated benefit of the post-money structure, which is to know what % of the cap table they are getting as of their closing. What it changes is that it makes post-closing issuances proportionately dilutive to both founders and investors, just as they would (and should) be in any other kind of financing structure.

There are numerous different ways someone could draft a “fix” to this problem. I’m just posting a simple public redline so founders, lawyers, and investors understand the problem, and can either go with this solution, or craft a variant that works for their context.

A colleague of mine also designed a very helpful model (in Google Sheets) breaking down the mathematical (economic) differences between a typical pre-money SAFE, post-money SAFE, and our suggested redlined post-money SAFE. We know engineers in particular love seeing the numbers.

To give a high-level idea of the economic implications, assuming the following:

SAFE Round 1: $5M pre-money cap or $6.5M post-money cap ($1.5M invested)

SAFE Round 2: $10M pre-money cap or $12M post-money cap ($2M invested)

Series A round: $25M pre-money, $31M post-money ($6M new money), 10% post-available pool.

In Series A dollars (company value as of Series A closing), common stockholders lose $912,000 in moving from the traditional pre-money SAFE to YC’s preferred post-money SAFE. Fast-forward to an exit years later, and you’re talking easily millions or even tens of millions of dollars in lost value from simply changing the template.

Again in Series A dollars, common stockholders gain appx. $1.2 million in using the redlined post-money SAFE relative to YC’s post-money SAFE. The addition of just a few extra clarificatory words (which eliminate the hidden anti-dilution protections for investors) shift $1.2 million in Series A value from investors to the common stock; which again could easily be >$10 million by exit. All with just a few tweaks of language.

If this isn’t clear already: the stakes here are extremely high. And anyone suggesting that mindlessly using an investor or accelerator’s preferred templates is “saving” founders money (by reducing legal fees) is either hilariously uninformed, or lying out of their teeth. Tread carefully, and stay well-counseled.

Disclaimer: The model presented above is purely a hypothetical based on general math mechanics of SAFE and Series A rounds. The specific outcome in your company’s case will be dependent on the facts and circumstances, and you should always use experienced, trusted advisors to avoid missteps.  

“No Code” v. “Open Source” Approaches to Early-Stage Startup Law

TL;DR: Fully automated startup financing tools often utilize templates designed by and for investors. They claim to save founders money by reducing legal fees, but founders often end up giving 10-20x+ (relative to fees) away in cap table value as a result of the inflexibility and lack of trusted oversight over the “code.” Using vetted and trusted templates, while still incorporating non-conflicted counsel into the negotiation and review process, provides the best of both worlds: common starting points, with flexibility and trust.

Background reading:

“No Code” is a term I’ve been hearing more often lately. It refers to new tools that allow users to “program” various processes without actually having to code them; effectively modules of tools that are interoperable and allow building semi-customized programs without needing to actually get into coding. Very useful.

While “no code” seems to certainly have a good value proposition for many user contexts, it occurred to me recently that “no code” is good short-hand for the startup financing approach that parts of the investor community, and to some extent the tech automation community, has tried to peddle onto startup ecosystems and founders. By pushing the minimization of “friction” in funding (just sign fully automated templates), with the key “carrot” being the reduction in legal fees, these players want founders to think that it’s in their interests to simply close their financings with a few clicks, instead of leveraging lawyers to actually negotiate and flexibly customize the “code” (language).

The reasons behind why tech automation companies would push this perspective are obvious: they want to make money by selling you automation tools. But the reasons why the investor community is incentivized to also back this approach require a bit more explanation. For one example, see: Why Startups Should Avoid YC’s Post-Money SAFE.  First-time founders are what you would call “one shot” players in the startup ecosystem. They are new, inexperienced, and laser-focused on the single company they are building. Investors, including prominent accelerators, are instead repeat players. They are highly experienced, resource-rich, and stand to benefit significantly if they can sway the norms/”standards” of the market in their favor.

The most prominent, high-brand investors have all kinds of microphones and mechanisms for nudging the market in ways to make themselves more money, especially because the founders usually absorbing the content have little experience and knowledge for assessing substance. One of those ways is to push templates that they (the investors) themselves have drafted, and create an impression that those templates are some kind of standard that everyone should adhere to without any customization.  Of course, they’re far too clever to come out and say overtly that these templates are designed to make investors more money, so instead they’ll latch on to more palatable messaging: these templates will save you legal fees and help you close faster.

To summarize, investors and tech automation companies push the “no code” approach to early-stage funding out of self-interest, but they use the “save you legal fees” marketing message to get founders to buy in. The problem that not enough people talk about is that by taking the “no code” approach, founders become permanently stuck with the pre-packaged and inflexible code (contract language) that these players provide. And as I’ve written extensively on this blog, the code is dirty.

I want to emphasize the word permanently here. Look up what most “no code” tools do. They help you sort contacts, build a spreadsheet, maybe build some low-stakes automation processes. Good stuff, but very different from, say, permanently signing contractual terms for millions of dollars that in the long-run can have billion-dollar economic and power implications. In startup funding, we are talking about executing on issues that are literally 1000x more consequential, and un-modifiable once signed, than all the other areas where “no code” approaches are applied.

Having a trusted advisor (lawyer) make even just a few tweaks to a template document, or flexibly choosing a better-fit template to begin with, can have million/billion-dollar implications for a company. Given the enormous stakes involved – what bank account exit money goes into, and who gets ultimate decision-making power over an enterprise – founders need to think very hard about whether getting boxed into an inflexible automation tool, in order to save at most $5-25k in fees in a seed financing, is actually the smart approach. I see inexperienced founders regularly handing over millions in cap table value to investors, and in some instances unwittingly giving those investors strong “choke point” power over their governance, all because the founders were convinced that lawyers are a boogeyman extracting money to just push paper and hand-waive with no value-add.

Notice here that I’m not advocating for a wholesale reversion to the old-school days of simply letting lawyers take full control of the negotiation process, using whatever forms and standards they want. There is enormous value in having market-respected starting points for negotiation; sets of templates known and understood by investors, and trusted by lawyers who represent companies (and not investors), that can then be flexibly modified to arrive at a final deal that makes sense for a specific context. By having your lawyers (who hopefully aren’t conflicted with the investors they’re negotiating with) draft initial deal docs from a reputable template, the lawyers on the investor side can redline against that familiar starting point, instantly reducing the amount of up-front negotiation by 80% because they aren’t working with language (code) they’ve never seen.

What I’m effectively advocating for here is an “open source” approach to high-stakes early-stage startup law. It allows for some standardization (efficiency), but also flexible customization, to ensure every deal is fair for the parties involved. And importantly, it ensures that the templatization and customization is transparent and “open,” with lawyers from both the investor and startup (company-side) community participating; instead of the one-sided “here are the standards” model that certain VCs have tried to adopt. We can deliver founders and investors substantial efficiencies in fundraising, without using “saving fees” as an excuse for burdening founders with inflexibility and “dirty” code (contracts) that simply aren’t justified.

With this in mind, I’ve published a Seed Round Template Library, with links to templates for convertible notes, pre-money SAFEs, seed equity, and full NVCA docs, along with a few educational articles. By using these starting points, founders can have the efficiencies of working from vetted and trusted language, but without the enormous costs of using fully automated templates designed to favor investors.

Myths and Lies about Seed Equity for Seed Rounds

TL;DR: The release of the Post-Money SAFE structure, which is the worst possible way to raise seed money for most startups, has incentivized seed investors to perpetuate various myths and lies about alternatives (particularly about seed equity), in order to push founders to accept bad economics. Founders need to look past the spin and self-interested advice, to ensure they are assessing all the variables clearly.

The fundraising advice that vocal investors, many with blogs and twitter accounts, give to first-time founders often closely tracks their own incentives and self-interest. For example, a few years ago before the creation of the Post-Money SAFE, many early-stage investors complained that Pre-Money SAFEs had all kinds of problems, and that founders should strongly consider equity for their seed rounds. That was, of course, because Pre-Money SAFEs were very company (founder) friendly from an economic and governance rights standpoint, and those investors got more of the cap table by hardening their positions via an equity round with extra rights.

But now that YC has taken it upon itself to promote the Post-Money SAFE, which has terrible economics for companies/founders and is great for early-stage investors, suddenly the narrative has flipped. Now many of those same investors sing the praises of SAFE rounds, and have spun all kinds of myths and lies about why seed equity is apparently now such a terrible structure. The point of this post is to dispel some of those myths and lies.

Myth / Lie #1In an equity round you have to give investors a board seat.

Simple, you don’t. There’s nothing inherent in doing an equity round that requires giving investors a Board (of Directors) seat, and we’ve seen plenty of equity rounds that don’t. On the flip side, some SAFE and convertible note rounds will involve giving a Board seat to investors. Whether or not giving investors a Board seat in your seed round is appropriate or a good idea is entirely contextual, but there’s no connection to that negotiation point and the general structure of the round.

See also: Pre-Series A Boards.

Myth / Lie #2Equity rounds require you to close all of your investors at once, instead of with “rolling closings.”

Nope. You can do “rolling closings” quite easily in a seed equity round, so there’s no inherent need to have all of the money rounded up at once. Sometimes investors will place a limit of 120-180 days to do those rolling closings, but other times there’s no deadline and it’s open-ended.

Myth / Lie #3: Equity rounds require you to have a lead investor.

It certainly helps to have a lead investor – someone writing a big enough check, and with their own counsel – to do some light review of the equity docs in a seed equity round, but again there’s nothing inherent in the equity structure that requires it. It’s more about the comfort level of the investors. I have seen “party” seed equity rounds where everyone writes a $50K-200K check. It works fine, particularly now that there are relatively well-known seed equity templates out there that can be referenced and recognized among sets of specialized ECVC lawyers.

Myth / Lie #4: Equity rounds take months to close.

I’ve seen seed equity rounds go from term sheet to money in the bank in 2 weeks. Now that’s definitely on the faster end of the norm, and 3-4 weeks is more common. It’s not lightning fast, but neither is it the dragged-out process that some investors suggest it is. The primary drivers of a lengthier timeline are diligence issues (cleanup) and investor negotiations/delays. Nothing inherent in a seed equity round structure requires it to take a long time, given that well-used templates require minimal customization.

Given how high-stakes the terms you’re committing to in any fundraising are, there is some value in slowing down enough to really know what you’re getting into. See: Negotiation is Relationship Building.

Myth / Lie #5Equity rounds require paying $50-100K in legal fees.

It is true that any equity structure is likely to require somewhat higher legal fees than a SAFE or convertible note round, but seed equity, which is a simplified equity structure relative to full NVCA-style docs (which are more commonly used for Series A and later rounds) isn’t nearly as expensive to close on as some investors suggest. On the leanest end I’ve seen seed equity close for about $10-15K in company-side legal fees, and $5K on the investor side, but more realistically you’re going to be closer to $20K company side and $10K investor side, so about $30K total; possibly higher if you use very expensive firms.

A good ballpark of fees spent from beginning to end for a multi-million dollar SAFE or convertible note round is $2.5K-$5K, so let’s say the delta between convertibles and seed equity is ~$25K in legal fees. The question then becomes, are the positives to closing on a seed equity round worth more than $25K? Very often they are. Easily.

Especially if your investors are asking for a Post-Money SAFE, which has extremely expensive (long-term) anti-dilution mechanics built into it if you end up needing (and likely will) more seed money later, the difference in dilution between a seed equity raise and a Post-Money SAFE can often be multiple percentage points on your cap table. If the difference is 1%, $25K implies a $2.5 million company valuation. If it’s 2%, it’s $1.25 million.

I have seen many companies raising at $10 million, $15 million, even higher valuations in their seed rounds, with multiple million in funding, and yet their investors act as if the extra cost of a seed equity round is so burdensome that the founders should just do a Post-Money SAFE; which in the long-run hands multiple percentage points on the cap table to the seed investors. Basically they are telling founders that they should avoid paying the equivalent of 0.25-0.5% of their enterprise value now in cash for a more hardened, company-favorable deal structure, and instead give 1-2% more of the company as equity (with upside) to the seed investors, which in the long run could be worth millions for the highest-growth companies. That is a horrible tradeoff for the founders.

Translation: “Don’t spend $25K in legal fees now. That’s a “waste of money.” Instead stick to our preferred template and give us 6-7 figures worth of extra equity!”

This isn’t to say that equity is always the right answer for a seed raise. Hardly. Sometimes pre-money SAFEs make sense. Sometimes convertible notes do. I’m a fan of modifying a convertible note to have the economics behave more like equity, but with the streamlined structure of a note; the best of both worlds. And sometimes your investors will demand that you give them a full NVCA suite of docs. Context matters, and so do the numbers.

There’s no universal answer to how you should structure your seed round, because every company is different, and different investors and founders have different expectations, priorities, and preferences. However, not falling for the most common myths and lies that investors give to push you in favor of their preferred structure – which usually is whatever makes them more money – will ensure your eyes are wide open, and you can assess the positives and negatives clearly.

Early v. Late-Stage Common Stockholders in Startup Governance

TL;DR: While the preferred v. common stock divide gets the most discussion in startup corporate governance, and for good reason, the early v. later-stage common stock divide is also highly material. Given their different stock price entry points, early common stockholders (like founders and early employees) are not economically aligned with common stockholders added to the cap table in Series B and later rounds. This has important power implications as to who among the common stock gets to fill the Board’s common stock seats, or vote on other key matters. Clever investors will often put in subtle deal terms that allow them to silence the early common stock in favor of later-stage common stockholders who are far more likely to agree with the interests of the money.

Background reading: The Problem with “Standard” Term Sheets

The Common Stock v. Preferred Stock divide is the most important, and most discussed, concept in corporate governance as it relates to startups. The largest common stockholders are typically founders, followed by employees. Preferred stockholders are investors. Sometimes in growth rounds investors will dip into the common stock via secondary sales, which muddies the divide, but for the most part the divide is real and always worth watching.

Investors (preferred) are diversified, need to generate high-returns for their LPs, prefer to minimize competition in rounds where they have the ability to lead, and have downside-protection in the form of a liquidation preference. Common stockholders, particularly founders and early employees, are far more “invested” in this one company, want to maximize competition among potential investors to increase valuations, and don’t have downside protection. That creates fundamental incentive misalignments.

This divide becomes extremely important when discussing the two key “power centers” in a company’s corporate structure: (i) the Board of Directors, and (ii) veto rights at the stockholder level. The latter usually takes the form of overt veto rights (often called protective provisions) spelled out in a charter, but there are also often more subtle veto rights that can have serious power implications; like when a particular party’s consent is needed to amend a contract that is essential for closing a new financing.

When founders (and their legal advisors) actually know what they’re doing, they’ll pay extremely close attention in financing terms to how the Board composition is allocated between the common v. preferred constituencies, and whether either group is given “choke point” veto rights that could be utilized to exert inappropriate power over the company. Unfortunately, because founders are often encouraged (usually by clever investors) to mindlessly rush through deals, and even sign template documents produced by investors, extremely material nuances get glossed over, with the far more experienced VCs benefiting from the rushing. It gets even worse when the lawyers startups use are actually working for the VCs.

As just one example, founders will often focus exclusively on high-level Board composition, because it’s the easiest to understand. They’ll say something like, “well, the common still controls the Board, so everything else doesn’t matter.” But that’s simply not true. You may have control over your Board, but if your preferred stockholders have a hard veto over your ability to close any future financing – if the preferred have to approve any amendments to your charter, you can’t close new equity – then your investors are really in control of your financing strategy. The Board is important, but it’s not everything.

The purpose of this post is to highlight another important “divide” among constituencies on the cap table: early-stage common stockholders (founders and employees) v. later-stage common stockholders (later hires, C-level execs who replace founders). While less relevant Pre-Series A, this divide becomes much more important in growth-stage financings, and plays into the power dynamics of company governance in ways that early-stockholders are often poorly advised on.

Any party’s “entry point” on the cap table has an extremely material impact on their outlook for financing and exit strategy. If I got my common stock in Year 1, which is the case with founders and early employees, the price I “paid” for that stock is extremely low. But if I showed up at Year 4, I paid much more for my stock, or I have an option exercise price that is substantially higher.

Fast-forward to Year 5. The company’s valuation is tens or hundreds of millions of dollars. The Y1 common stockholder is sitting on substantial value in their equity. Multiples upon multiples of what they paid for their stock. They’ve also been grinding it out for years. The Y4 common stockholder, however, is in a very different position. They only recently joined the company, and their equity is only worth whatever appreciation has occurred in the past year.

Now an acquisition offer for $300 million comes in. Put aside what investors (preferred stockholders) think about the offer. Do you think the “common stock” are all going to see things in the same way? Is the Y1 common stockholder going to see the costs/benefits of this offer in the same way that the Y4 common holder will? Absolutely not. Later-stage common stockholders have far less sunk wealth and value in their equity than early-stage common stockholders do, and this fundamentally changes their incentives.

Now apply this early-stage v. late-stage common stock divide to Board composition. Simplistically, founders often just think about “common stock” seats. But who among the common stock gets to fill those seats? Investors who want to neutralize the voice of the early common stock on a Board of Directors will put in subtle deal terms that allow them long-term to replace early common stockholders with later-stage common stockholders on the Board, because the later-stage holders (often newly hired executives) will be more aligned with later-stage investors who want to pursue “billion or bust” growth and exit strategies. A Y1 common stockholder has far more to lose in turning down an exit offer, and instead trying for an even bigger exit, than a Y4 common stockholder does.

The most popular way that this shows up in terms sheets / equity deals is language stating that only common stockholders providing services to the Company get to vote in the common’s Board elections, or in approving other key transactions. Once you’re no longer on payroll, you lose your right to vote your stock, even if you still hold a substantial portion of the cap table.

Through the natural progression of a company’s growth, founders and early employees will usually step down from their positions, or be removed involuntarily. Whether or not that should happen is entirely contextual. However, it is one thing to say that an early common stockholder is no longer the right person to fill X position as an employee, but it is an entirely different thing to say that such early common stockholder should have no say at the Board level as to how the company should be run. Whether or not I am employed by a company has no bearing on the fact that I still own part of that company. The entire point of appropriate corporate governance is to ensure that the Board is properly representing the various constituencies on the cap table. Early common stockholders are a valid constituency with a valid perspective distinct from executives hired in later stages by the Board.

Deal terms that make a common stockholder’s voting rights contingent on being employed by the company are usually little more than a power play by investors to silence the constituency most likely to disagree with them on material governance matters, and instead fill common Board seats with later-stage executives who will toe the line. Importantly, aggressive investors will often rhetorically spin this issue as being simply about “founder control,” to make it easier to dismiss as self-interested, but that is flatly inaccurate. Many Y1 or Y2 common stockholders are not founders, but their economic incentives are far more aligned with a founder, who also got their stock very early, than with an executive hired in Y5+.

Yes, the largest early common stockholders will often be founders, but the reason for giving them a long-term right to fill Common Board seats is not about giving them power as founders, but as representatives of a key constituency on the cap table that is misaligned with the interests of investors and later-stage common holders. This isn’t “founder friendliness.” It’s balanced corporate governance.

The message for early common stockholders in startups is straightforward: don’t be misled by simplistic assessments of term sheets and deal terms. It’s not just about the common stock v. preferred, but whether all of the common stock gets a voice; not just the common holders cherry-picked by investors.

The Carta SAFE for Seed Rounds

Background reading:

As I’ve written in various places (see above), a significant problem that has emerged in startup ecosystems involves certain investor organizations pushing startups to adopt their preferred financing templates. Predictably those templates are often riddled with issues that favor the interests of the money. Of course these organizations are far too clever to come out and state transparently, “we want you to use this document because it makes us and other investors more money,” so they spin other narratives about saving founders time, or reducing legal fees; even though the “cost” to founders is often orders of magnitude higher than whatever they might be “saving” by mindlessly signing the templates.

This dynamic was most visible with YC’s announcement of the Post-Money SAFE, which implemented economic concepts exorbitantly favorable to seed investors (including YC of course), but was marketed as a way to (air quotes) “help” founders have more “clarity” about their cap table. YC, their long list of positive impacts on the ecosystem notwithstanding, is still an investor with lots of mouths to feed. No one should’ve been surprised that it would use its brand leverage to push a more investor-favorable document onto startups, particularly now that, with its brand having significantly matured, it no longer needs to rely as much on “founder friendliness” to attract startups.

Carta, the incumbent capitalization SaaS used by startups, recently announced that it is enabling automated SAFE financing on its platform. Interesting news, and I’m sure it’ll save teams planning on closing SAFE financings a bit of hassle. But automated SAFE closings have been available on other platforms, like Clerky, for some time, and realistically the technology behind it is hardly earth-shattering. Given that SAFEs are utilized far more in California than in the rest of the market, that’s probably where the automation will have the most impact.

What I find much more interesting, and relevant to topics I write about, is that Carta chose to tweak the YC SAFE docs and create a “Carta SAFE.” Companies can still close on YC’s Pre-Money or Post-Money SAFE templates, but they also have the option of a Pre-Money or Post-Money “Carta SAFE.” The changes themselves are fairly innocuous, but helpful and balanced. More importantly, I think it’s worth recognizing the valuable role that an organization like Carta could play in promoting various template financing structures to startups.

YC is a venture capitalist, and thus highly biased in the terms it purports to offer as “standard.” They lost tremendous credibility among the legal and startup community – although surely gained favor among VCs – with their 180 on the Post-Money SAFE. They absolutely deserve respect for their track record of picking successful startups, but lines have been crossed with respect to any facade of “founder friendliness” in their template standards.

Carta, however, is a technology company that (as far as I know) is not investing in dozens of startups every year. Carta has far less reason to favor an investor-biased document, and thus potentially has far more credibility in swaying market “standards” in a more balanced direction. This is visible in how they’ve implemented their automated seed financings and templates, relative to how YC pushed out the Post-money SAFE.

Go to YC’s website, and you can’t even find the old pre-money SAFEs with more company-favorable economics and terms. All you have is the new (profoundly investor-biased) Post-Money docs for download. This simple fact has actually caused huge confusion among inexperienced founders, who often aren’t even aware that YC dramatically changed their forms and economics, and thus (thinking they are doing themselves favors) simply download and execute the forms on YC’s site. YC could’ve very easily offered up the new Post-Money SAFEs, while leaving the old forms also available for download, with clear prompting to founders to work with advisors to decide which form they prefer. Instead, YC consciously chose to promote only the new forms, signaling a clear desire to change the market “standard” in favor of investors.

Contrast that with Carta. The Pre-Money v. Post-Money distinction is front and center in their UI, with both types of forms easily accessible to startups, and with helpful tools for comparing dilution from the different structures. This is a far more honest and transparent way for helpful templates to be offered to startup teams, without shady gimmicks or marketing spin to nudge them in favor of the money. It should be applauded.

Of course, I’m not going to wrap up this post without acknowledging that Carta still has bias. Who doesn’t? As an automation tech company, they are obviously biased toward automation and templates that enable automation. There are countless ways in which financing documents can (and often should) be negotiated and tweaked to make them a better fit for the unique context of a particular company raising money from particular investors. Sometimes convertible notes of various flavors make more sense. Other times seed equity. Other times the full suite of NVCA equity docs.

Despite growing traction among public templates, an enormous amount of investors and startups still take advantage of flexibility and customization in their deal docs, because the stakes are so high, the context and people involved so nuanced, and the terms so permanent, that it’s worth doing a bit of negotiation. If a few thousand dollars of legal fees can save you a few million in the long-run on your cap table, it doesn’t take advanced calculus to arrive at a decision.

In saying that, I’m obviously reflecting my own bias as company counsel to startups (and not investors). My job is to ensure startup teams are aware of all the options on the table for their financings and corporate governance. That of course includes bringing up when an automated template might make sense. Sometimes it does, often times it doesn’t. We can all stop pretending that serious lawyers are in any way threatened by tools like Carta or Clerky. I love these tools, because the last thing I enjoy spending my time on is shuffling cookie-cutter forms. Use the cookie-cutter when it makes sense, but make sure you really understand the tradeoffs and limitations, because a lot of very smart teams decide to put the cookie-cutter down and take a more “custom fit.”

Venture capitalists, together with Startups, are biased in favor of their own bank statements. Automation tech companies, like Carta, are biased in favor of hyper-standardization and automation. And high-end ECVC (Startup) lawyers, like me, are biased in favor of flexibility and customization. There’s no need to hide any of this. Every party has an important role to play in the ecosystem, and the interaction of all the moving parts ensures we all arrive at a reasonable equilibrium.