Backing Out of a Term Sheet | Hacker News Reader

Backing Out of a Term Sheet

cdixon.org

41 pointsinmygarage12 comments

I think this will become much less common now that word spreads so much faster among founders. We've only twice had VCs break a termsheet with a YC funded startup, and both firms are now blackballed to varying degrees. There's also a third VC I would probably never refer a startup to because of a termsheet he broke with the previous startup of some guys we later funded.

If you made this list of three VCs public, it would place much greater pressure on VCs to never, ever do this. Having a term sheet pulled is low probability, but it can all but kill the chances of closing a round.

I think there's a difference between sharing their names in the appropriate places (eg, a startup school presentation), and publishing them on a social news site. It's contextually similar to a common discussion about celebrities and criminals, which compares "the public interest" with "of interest to the public".

I'd be interested to know who they are. But until / unless I get involved with the VC community and meet with pg to discuss, it's not beneficial for me to know.

The reason I don't is not that I'm against that in principle, but that it would be too extreme a measure in these 3 specific cases. If a VC did something bad enough I would talk about it publicly.

Libel, etc, I imagine.

The truth is an absolute defense.

(Yes, I know it's impolitic - and Chris does the same "all the people I know will be told" line - but as one of those crazy transparency > feelings people, it'd be my preferred outcome. I only spent one year on the VC side in my short career, but I'd have resigned if we ever even thought about pulling this stunt.)

> The truth is an absolute defense.

In the US. Not in the UK. I don't know about other countries.

So, why not name those. It would benefit everybody else, and lessons learned can be shared.

Or do you think that there may be a reversal of your judgment in the long run?

I can't see how they could sue for libel as suggested elsewhere, either they backed out or they didn't.

Another possible downside of naming them would be that if you named them it might make other VCs skittish of doing business with YC for fear that if they mess up they'll be told on.

All that it would do is to make people prioritize differently, after all, since a termsheet isn't a contract there is no 'backing out', there is simply no follow up.

It's just 'not done' but that doesn't mean that it can't be done.

I do believe that the term sheet not being a contract works the other way around as well, and I've seen quite a few cases where entrepreneurs got cold feet and decided to backpedal at the last moment, and that should definitely be held to the same standard.

That's why we have sites such as http://thefunded.com so we can share that information with all the people who need to know (the founders), while avoiding public embarrassment.

I hope you're right - social pressure can be incredibly powerful, especially in a business where deal-flow is currency.

How is it going to haunt the VC if he doesn't name them?

Because when any YC startup (or anyone who has an audience with pg) asks him about AcmeVC, he'll tell them to stay away.

Paul is pretty connected, and the community isn't that big.

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