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Beware of the complicated deal (part II)

A few months ago I wrote about the woes of complicated deals.

I’ve recently seen a number of complicated deals and thought it was worth sharing the issues that come along with them.

One of our companies is looking for an independent board member. We have a few candidates in mind. One of them in particular seems like a great given his track record. But that person wants a complicated arrangement. I haven’t seen anything quite like it in any of our other portfolio companies. I’ve encouraged the CEO to offer this person a simple standard offer (for this type of position) or just move on. I am a big fan of this individual but not the deal being proposed.

I’ve also seen a number of startups lately where the employees have different deals, terms, incentives, employment contracts etc. I’m all for a meritocracy where some employees deserve more compensation. However, I would highly recommend keeping the terms standard and just dial up (or down) the cash and stock. Everyone should have the same terms when it comes to vesting, acceleration, severance, bonus schedule, etc (except the founders in some cases). It’s easier to keep track, minimizes resentment (or regrets) and makes future hires easier.

The last one I’ll share today is equity financing terms. The first problem with complicated terms in financing documents is the chance that honest mistakes are made along the way. It happens.

 

The second problem is that you have to live with those complicated terms and most likely will have to give those same rights to future investors as well. Those complicated terms live on forever and might even compound. That’s not good for the founders/employees and it’s not good for the early investors.

As always the best things in life are simple.