The Founders Terms Sheet Generator is designed for use by founders of start-up companies with their lawyers. It is by design not jurisdiction specific, as it focuses on the internal rights and obligations agreements among the company founders in ventures with two or more founders—i.e., it facilitates clear outlining of intended business arrangements that can then be reflected in legal documents in the company organizational process. Moreover, this tool is designed to be used before “choice of entity” determinations are made, as the fundamental internal “deal points” among the founders it addresses should be explored regardless of (and as part of the multi-factored overall analysis leading to) the making of the type of business entity decision. Unlike terms sheet generators for venture capital or similar “outside investment” deals that often follow distinct patterns, the Founders Terms Sheet Generator, created through a course at UMKC School of Law, allows for tailoring to the particular desires of founders.
The generator, the current prototype of which has been built on a platform provided pro bono by Neota Logic, includes a detailed, guided questionnaire that gathers informational inputs that produce a “term sheet” intended to constitute a non-binding guide to the preparation of binding organizational documents. It can be completed by the founders themselves, with the terms sheet then studied and used by legal counsel as the negotiation of the company organization documents progresses. The guided questionnaire contains several educational components, through definitions and examples on pivotal issues in “non-legalese” terms meant to be user-friendly for the founders.
The Founders Terms Sheet Generator is one of two components of the Start-up Advisor Toolkit project in the LTL portfolio—the other being the LLC Formation Tool component led by Larry Farmer and Jeff Ward described at http://www.thelegaltechlab.com/index.php/start-up-advisor-toolkit-llc-formation-tool. Both components are now being tested across several pilot clinics for feedback and refinement. We contemplate developing in a subsequent phase linkage of the two platforms so that responses that generate the Founders Terms Sheet will also populate associated provisions of company organizational documents being prepared by legal counsel.
The Generator fills a gap in automated terms sheet generators available for founders of entrepreneurial ventures with two or more founders that are not currently seeking and in fact may never seek venture capital investment from outside sources. The tool is sophisticated in its detail and tailoring options, but presented in terms designed to be accessible to users without law degrees. At the same time, the Generator may also prove to be a uniquely valuable tool for lawyers who have general practices that do not necessarily involve business entity formation work on a regular basis
A prototype of the Generator was developed and refined over a few semesters of offerings of an interdisciplinary Law, Technology & Public policy course at UMKC, on a platform made available by Neota Logic, pro bono. It has been vetted at “prototype jams” associated with UMKC and the LTL, and improved based on input from those events. Further testing and refinement is in process at approximately 10 law school clinics serving entrepreneurs and certain members of the LTL Community, with a view toward an improved iteration to be made available across the large network of clinics and other providers of legal assistance to modest means clients with which the LTL interacts.