Ask HN: 2 page simple term sheet and 100+ page contracts. What to do?
We received a very straight forward term sheet which we completely agree upon. However, after signing the term sheet we received 100+ page legal document. What should we do?
1. Engage a law firm which will take time.
2. Try to find someone who has hands-on experience
3. Read it ourselves and figure it out.
4. ??? 100 pages is a lot, but there are absolutely no circumstances under which a non-lawyer should finalize an equity round of finance without legal representation. Even if it you don't care about yourself, or any future employee who might be saddled with the currently unknown 'gotchas', you will still be screwing friends/family investors and your spouses and children. Seriously, get a good attorney. It's an accepted and expected part of finance that you will incur some legal costs getting a round of financing done. All that said, if this is an angel round, that document is too long. A good angel or group will want to keep it simple, and leave the major lawyering to a Series A. But overall, a) congratulations! and b) suck it up, and go get the best lawyers you can find. p.s. You should also ABSOLUTELY read the entire thing yourself. A basic part of business ownership -- welcome to it. p.p.s. Drop me a note: vessenes@gmail.com if you need to talk it over with someone who doesn't have a vested stake in it, I'd be happy to chat about it with you. Depends how much money the investment is for. If it is for 100K or more, I would have a lawyer look at it. You do not need to hire a large expensive firm, and a good lawyer should be able to stay within reasonable cost constraints (just make sure you negotiate an acceptable cost estimate before you start work). any suggestions for new york area? I've used the New York office of Gunderson Dettmer for this. They're not cheap but they will explain everything to you perfectly and will get the details right. In my opinion, money well spent. Seconding that. Gunderson rocks. Sit on it and say "we're reviewing it" and in the meantime keep the other party interested and excited, then tell them after reviewing it that you've been advised that it needs to be reduced. 'Advised by whom?' they'll ask, so they can put their counsel in touch with your counsel to swap back and forth redlines. And then what are you going to say, Hacker News? Get a lawyer, that's just how this works. Honestly, I would hand it back and ask them to reduce it to less than 10 pages. There's nothing to be intimidated about legal documents in general (reading through them you can make any changes before signing) but 100 pages just isn't fair in a business relationship. Their logic behind it is the efforts of raising subsequent rounds will be highly reduced with not much changes in the documentation. That's probably true. Read it yourselves over the weekend, and sit down with an attorney next week - call a few different ones to see who you feel comfortable with. This phase could go on for a while: don't take any contract provisions personally, as right now they're no more than an opening negotiation position. Cautious congratulations, by the way - this must be an exciting time, even if it's a bit challenging. Both the length of the term sheet and the funding docs are in line with ones I've signed. This is why you need counsel. Get a lawyer. The complexity of the docs is the reason term sheets exist in the first place. Read it. Take copious notes. Highlight areas of potential concern. This should help keep your legal costs down, as the attorney can focus his or her time on the issues most important to you. EDIT: My brother practices this area of law with offices in NY & NJ; if you want to keep costs down he could probably put a junior person on your case. You can reach me at my user name neuenhaus.org Do you trust them? Do they have a reputation to protect? A lot. They have a huge reputation. 1. Better to take your time than to take your money. Engage a law firm will take your time and your money. So does surgery, but procrastination is usually the most costly decision of all.