When startups and investors decide to work together, they enshrine the deal in something called a term sheet. It’s a nonbinding document that sets out equity shares and funding amounts, delineates control (like who sits on the board), and offers a template for actual legal agreements. Typically, they’re a dry recitation of particulars. But, according to James Joaquin, a serial-founder-turned-venture-capitalist, they could be something more exciting and expansive: a way to assert a company’s values before the struggles of the business make them harder to fulfill.
Joaquin, who cofounded impact investor Obvious Ventures, says term sheets are an opportunity to lay out how a startup intends to treat its employees, its position on the environment, its stance on diversity and inclusion, and how it plans to give money to charity when it becomes successful. And more companies should take that opportunity, he argues.
Many founders leave the “soft stuff” behind when making investment deals, Joaquin says, tending to consider such issues later when they’ve established teams, products, and markets. That’s an error: The term sheet, he says, is an ideal moment to make a stand and set out how the key founder-funder relationship will work over the long term.“Great founders have choices about who their investors will be. The term sheet is like a personality test or a dating service. If you can tease out cultural alignment early on, it pays huge dividends later,” he says. Though term sheets don’t offer legal certainty, they do send signals about a company’s reasons for being and the values it will uphold.
Joaquin started Obvious Ventures with Evan Williams, of Twitter, Blogger, and Medium fame, and Vishal Vasishth, a former executive with social business pioneer Patagonia. It subscribes to a philosophy of “world-positive investing,” which says companies needn’t concede profits to do good for the planet.
In drawing up world-positive term sheets, Joaquin recommends startups consider four main areas: core values; diversity, equity, and inclusion; sustainability; and philanthropy (he writes up an example here). Here’s a bit more detail on each of those:
Obvious’s impressive portfolio includes startups like Mosaic Solar, a crowdfunding platform for solar leasing, Diamond Foundry, which “cultures” synthetic diamonds (avoiding the conflict and environmental implications of natural diamonds), and Proterra, which makes electric buses. To Joaquin, they’re all examples of business that have a social purpose but also have potential to deliver decent returns (Proterra, which could get an IPO soon, was recently valued at more than $400 million).
“There is a large movement around how you measure impact as part of a justification of why you might have a lower return on [investment],” Joaquin says. “We think if you pick the right companies, all you have to measure is revenue and profits, because the revenue has some natural environmental and social impact.”
Some impact investors disagree with this have-it-all point of view. They say taking account of workers, customers, the environment, and communities often involves compromises. (It may also be easier to have to it all as a startup than as a public company.) But Joaquin’s world-positive term sheet offers another option for companies to enshrine their values from the outset, and set out how they expect investors to treat such issues. If you’re serious about doing good, it may make sense to do it from the beginning.
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