Rethinking Series A Term Sheets Through an Object-Oriented Approach to Capital

As a partner at IDG Ventures and Flight.vc, I have had the privilege of working with numerous entrepreneurs and startups. However, I must admit that one aspect of venture capital has always frustrated me – term sheets. Specifically, Series A (and beyond) term sheets can be convoluted and overwhelming for founders.

In this article, we will explore a better alternative to traditional VC terms: Object-Oriented Capital (OOC). This innovative approach allows entrepreneurs to pick the terms that matter most to them, rather than being bound by conventional norms. By understanding OOC and its benefits, we can create a more equitable and flexible venture capital ecosystem.

The Problem with Traditional Term Sheets

Venture capital term sheets are notorious for their complexity. They often include provisions such as:

Preference: Investors receive their money back before the entrepreneur
Pro rata: Investors have free call options
Budget veto rights: Entrepreneurs need approval from investors for business decisions
Veto on sale: Investors decide when a company can be sold
ROFR (Right of First Refusal): Investors make it difficult for companies to sell their stock
Option pool: A way for investors to ask for a discount on the price per share

These terms are often presented as standard in every deal. However, I have found that these provisions can be negotiable and vary from one VC to another.

Introducing Object-Oriented Capital (OOC)

Object-Oriented Capital is a novel approach to venture capital term sheets. It allows entrepreneurs to pick the terms they want and adjust the data attached to those terms to fit their priorities. For instance:

Want no veto on sale?: Datanyze achieved this.
Want no pro rata?: Cruise, AltSchool, and Discord have all secured this term.
No board seat?: Most of our deals have been able to negotiate this.
Want the investor to buy common?: Dollar Shave Club and Rent the Runway have both achieved this.

By allowing entrepreneurs to custom-order their VC terms, OOC offers a more flexible and equitable approach to venture capital.

The Benefits of OOC

Customization: Entrepreneurs can pick the terms that matter most to them.
Flexibility: Terms can be adjusted to fit specific needs and priorities.
Equity: OOC promotes a more equitable relationship between investors and entrepreneurs.

Real-World Examples of OOC in Action

Several companies have already benefited from OOC:

Datanyze: Co-founder Ilya Semin prioritized control over his destiny, securing no vetoes.
OnFleet: Khaled limited round size and pricing due to earlier convertible notes.

By understanding the needs of individual entrepreneurs, OOC creates a more tailored approach to venture capital.

Conclusion

Object-Oriented Capital offers a revolutionary alternative to traditional VC terms. By allowing entrepreneurs to pick and choose the terms that matter most, OOC promotes a more flexible and equitable relationship between investors and entrepreneurs. As we move forward in the world of venture capital, I believe it’s time to rethink the status quo and explore the possibilities offered by OOC.