Though there may be more funding than ever before available to Australian startups, murmurs within the industry about founder-friendly investment terms – or lack thereof – have been relatively constant as the space has developed.
In a bid for greater transparency, QUT Creative Enterprise Australia (CEA) has made the decision to publicly release the term sheet CEA offers startups participating in its creative tech accelerator Collider, with angel investor and CEA Investment Fund manager Shelli Trung calling on others in the industry to do the same.
With the Collider term sheet conditions based on a priced equity round, Trung said the decision was made so founders can get comfortable with legal terms earlier and, in turn, be confident in the conversations they’re having.
“Generally, investee companies are presented with a term sheet after being accepted into an accelerator, but the time frame between this acceptance and the beginning of the program is often short and can leave founders feeling pressured to make a decision and consequently uncertain about what they are signing,” she said.
For Trung, ensuring founders are able to make informed decisions is key.
“We believe an educated founder is a better founder and having a basic understanding of legal terms is a component of this,” she said.
“Early stage startups are always stretched of time and money. The worst case scenario for founders is quitting the security of a full time job and beginning an accelerator without a regular income while the investment funds are tied up because you’re sitting on a particular clause.
“We don’t want this for our prospective companies. We want all founders to understand terms earlier on, compare with the wider market and make the best decision for them.”
The move to make CEA’s documents public follows the Australian Private Equity and Venture Capital Association (AVCAL) in 2015 releasing a suite of templated documents for startups looking to raise between $250,000 and $2 million in funding.
In making the documents available, AVCAL urged readers to use them “responsibly only after retaining your own legal counsel” rather than using them “blindly”. Rather, AVCAL suggested they are best used as “a good starting point that can save you some time and money”.
Comprising documents including a term sheet, shareholders agreement, and employment agreement, the suite was put together with collaboration from organisations including legal firms LegalVision and Gilbert + Tobin, and venture capital firms Blackbird Ventures and AirTree Ventures.
AirTree Ventures then later made public its own standard form seed stage term sheet, stating, “We’re big believers in anything that makes the murky world of VC more transparent. We also know that anything that saves founders time and money when raising is a win/win for everyone.”
The bid from CEA to make the world of startup funding more transparent also comes after the widening of equity crowdfunding opportunities earlier this month.
Welcoming the reforms, Trung said her advice to founders on the fundraising journey is to “ideally” start with strategic investors to build out their needs in terms of expertise and network before launching a crowdfunding campaign to close the remaining round.
“As a general rule, founders should be careful when selecting which platform to use regardless of whether it is open to retail or only institutional investors. Let’s face it: tech is new asset class to the Australian community,” she said.
“It would be prudent for founders to ascertain if the platform they are consider is ASIC compliant, the communications they have with investors as well other responsibilities, such as reporting.”
Image: Shelli Trung. Source: CEA.