What is and what is not standard

by Dave Broadwin

The venture industry has spawned a fairly standard set of legal forms. Sarah Reed, formerly general counsel to Charles River Ventures, was the primary moving force behind the forms project. I was one of the early participants along with representatives from many of the major venture funds and law firms that regularly practice in the venture space. This includes east coast and west coast firms.. The project is perhaps six or seven years old. The project has produces a comprehensive set of investment documents and the group meets annually to upkeep and improve the documents. These docs are publicly available on the NVCA web site. Perhaps the greatest testimony to the success of the forms project is that the forms have gained wide acceptance in the industry.

Our firm regularly tracks VC investments in New England. We gather a lot of information about these deals including whether or not the transactions are based on the NVCA forms. We have been tracking the use of the NVCA forms for about a year and a half. Based upon our research, 75% of all venture investments in New England use the standard NVCA forms. This research is publicly available in our quarterly publication EEC Perspectives. Although we do not track west coast deals, anecdotal evidence indicates that there is a similar adoption rate on the west coast.

The NVCA forms are as good a set of forms as anyone is likely to run across. They are prepared by a group of practitioners that collectively represent many many decades of experience and perhaps many thousands of transactions. With adoption rates at about 75%, these forms are the industry standard. Importantly from the point of view of an entrepreneur, the forms are annotated, so that you can get different points of view on provisions for which there are varying alternatives.

Keep in mind that these forms are thought through and updated for changes in law and practice. If you find yourself in a deal and someone is using forms that are not the NVCA standard or are trying to convince you that some provision that is in the NVCA forms is not widely accepted, you should apply a certain critical thinking to the situation. These forms have been used in literally thousands of transactions and are therefore tried and true. As I have noted before in prior posts, forms make good servants and poor masters, but when forms have the level of use that these forms have, you need to be extra careful and understand why you are deviating from accepted norms lest the laws of unintended consequences overtake you and you discover that that there was a reason why the form was written the way it was written.