At Punakaiki Fund we like to keep things simple, and we encourage other investors and all founders to do the same.
However in past years the contracts used for many NZ-VIF/SCIF deals have been arguably quite toxic against founders, and these can make it very hard for investors, founders and the next round investors.
But things are getting better, and it’s good to see the NZ-VIF/SCIF standard documents posted on their website.
We have also observed that these contracts are negotiable to much simpler form, and encourage founders and investors to do so.
Help is available from Simmonds Stewart, who have represented companies we have invested into. They have marked up several SCIF documents, including the latest SCIF term sheet, which I highly recommend founders and investors in this space consult.
However Punakaiki Fund goes further, and we believe the rest of the industry should to.
- We would like to see contracts that are more founder-centric and less investor-centric;
- We would like to see contracts that trust the boards and founders and not be prescriptive about what the business does and retain actions;
- We would like to see contracts that say less, and rely on the excellent NZ law to provide investor protection;
- We would like to see simpler, shorter documents that are easier to understand (and sign). (We would like to see lawyers paid less and do more deals.);
- We would like to see terms where companies receive a net sum from investors and do not have to pay any kick-backs (6% in the SCIF world), investor legal fees or for any investor-directors; and
- We would like to see more deals done – and simpler contracts will help that happen.
So I have taken the blue pen to the Simmonds Stewart mark-up, and here is a SCIF Term Sheet mark-up from the perspective of LWCM and Punakaiki Fund. Tell us what you think.
Lance Wiggs 