Bijan Sabet has a post on the subject of east coast versus west coast term sheets. The post raises the issue of whether there are differences and why. The more interesting part is the comments. There is a lot of back and forth on east coast having tougher terms etc. There is a comment to the effect that east coasters are more likely to have redemption rights and founder reps and, perhaps, other terms. There is even comment to the effect that a lot of the differences stem from the lawyering style.

But I want to make a few points. First, while we all have some experience with both coasts, and some have more than others, no one has a comprehensive view of what is going on on both coasts. As a result, all the assertions are impressionistic. 

Second, a lot of the major VC firms have offices on both coasts and regularly do deals on both coasts. It is hard for me to imagine that they sit in their Monday meetings and say “well this is a west coast deal so no redemption but this one is an east coast deal we have to have redemption.” Just stating the proposition makes it sound ridiculous. There has to be convergence. Perhaps there are some identifiable differences (such as the founder reps thing or the redemption thing), but these are at the margins. If there were significant variations in valuations and terms, arbitrage would be closing the gap.

Finally, and this is what I really want to get to, the founder’s rep variation has really done the east coast a vast disservice. It is undeniably true that seven or eight years ago, when we first started working on the NVCA forms there was a significant difference in practice with regard to founder reps between east and west. For certain kinds of series A deals, east coast VCs insisted on getting founder reps. Whereas, this practice was anathema west coast VCs. 

I am not going to go into the merits of the two positions (BTW – I think the west coast VCs have largely beaten their east coast brethren into submission on the point). Rather I want to point out that the way the argument set up was that one coast (west) was entrepreneur friendly and one coast (east) was not. Despite the fact that, from my limited observation post, the differences between the coasts are very minor, this view of the east coast VC community as less friendly to entrepreneurs than the west coast VC community persists. It has become an unexamined bit of tech culture.

Again, while the practice of asking for founder reps has a sort of nasty edge to it (after all it tries to saddle the entrepreneur with personal liability for a variety of things), I think it rarely (perhaps never) has a practical consequence. I am unaware of even one instance in which a VC has sued to get made whole based upon a failure of a founder rep. Of course, I am not aware of everything. I have a hard time imagining a VC fund suing a founder other than in the context of serious fraud, in which case the VC would have claims outside the purchase agreement. If you agree with what I just said, it is hard to imagine why a VC would insist on founder reps.

This is the one issue that everyone consistently points to when noting the different attitudes towards entrepreneurs between the two coasts. So, I think that the negative view of east coast VCs is largely a self-inflicted wound.