Below, we continue our analysis of the “Open Source Seed Financing Documents” released by the Australian Private Equity and Venture Capital Association Limited (AVCAL) and turn our attention to the advantages of the AVCAL document suite for startups.
1. Published by a Respected Industry Body
AVCAL is a respected, self-organised industry body which refers to the AVCAL documents as those which “we” (investors) use in negotiations in a startup context. In tandem with its plain English introductory text that explains its purpose is to assist startups, they can give the impression that the documents represent a form of agreed industry standard.
However, AVCAL is comprised mainly of investors, especially fund managers, and its members drafted the AVCAL documents. That said, founders can negotiate the terms and should speak with a startup lawyer to assist.
2. Potential to Save Money
The AVCAL documents are already drafted in full except for a few placeholders to insert details specific to the given deal. AVCAL members who prepared the documents bear the costs. If founders accept the terms of the AVCAL documents, they could save considerable money.
However, it’s prudent for startup founders to engage a lawyer familiar with the AVCAL documents to review the suite. There are certainly key terms within the documents that can and should be negotiated to improve the startup’s position.
3. Potential to Save Time
As founders are busy building their business, the prospect of spending hours each day negotiating legal contracts can sound unreasonable. At first glance, it might seem more time-effective to accept the already drafted terms rather than research a startup lawyer and provide instructions to review or prepare an alternative set of documents, which an investor may or may not accept.
Although the AVCAL documents are a good starting point and will save considerable time as founders know investors will accept the terms, it is again sensible for founders to speak with a lawyer to advise on what terms they could negotiate and strengthen.
Conclusion
Theoretically, the timely negotiation of a startup’s investment documents will benefit both investors and founders. However, both parties want to ensure they have the best possible terms. In the long run, if the document suite favours an investor’s interests at the expense of the founder, the time and money saved can be offset by lost rights and future benefits. If you have any questions about capital raising for your startup, get in touch with our startup lawyers on 1300 544 755.
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