All Hail Morty
Last week I noted that Fred Wilson had the last word on what is "standard" and quoted a paragraph from his blog. The gist of the quote was that you need to be able to articulate a reason for the "standard" provision you want. (By the way, often things get to be standard because they address some important and recurring issue.)
Recently I ran into this little conundrum: an investor client agreed in a term sheet that he would get (in a liquidation event) the greater of a 4x capped participation or what he would get upon conversion into common stock. Well, we served up a draft with the NVCA standard term that embeds in the certificate of incorporation a provision that says in a liquidation event, the company will make distributions to give effect to this arrangement without the bother of having to convert.
Counsel for the issuer objects along the following lines "am inclined to remove it as it's not a standard provision that I have seen in certificates. I think it also tends to unduly burden the holders of common in an acquisition scenario." This works its way up to me as a "deal point." So my question to opposing counsel was something along the following lines, "Do you really think that the business people think that the investor has signed on to buy the right to guess whether conversion or non-conversion will provide the greater return or to actually be assured of getting the greater return?"
That issue went away. All hail Morty.
