Angels and Devils

I moved to Colorado over 20 years ago (holy cow how did that happen) and?founded Modus Law?almost 15?years ago.?Not only was I incredibly fortunate to work with amazing colleagues,?but we also?happened to be in Boulder during the explosion of?the Colorado?entrepreneurial movement led by folks like Brad Feld, Jason Mendelson, Seth Levine, Brad Bernthal and many?others.?TechStars?was booming, Foundry was changing venture capital,?and the Boulder?entrepreneur ecosystem was on a path like the revenue graph in every pitch deck.??

20 years later, there are so many great folks supporting entrepreneurship in Colorado, from Greater Colorado Venture Fund to?Rockies Venture Club and Big Foot Capital.?Innovative alternative funders like?Espresso?Capital and Baseline Growth Capital are supporting entrepreneurs in new?and?transformative ways and funds from the coasts and around the world are?constantly on the hunt for great “non-coastal” companies to fund.?Communities like Grand Junction, Fort Collins, Durango,?Telluride,?and others are creating great entrepreneurial?ecosystems?and opportunities of their own.?It is an awesome time to be part of this?universe.?

?But it?isn’t?all unicorns and rainbows.?While there is much to be grateful for, we still have a?long way to go to support diverse and inclusive founders, accelerate?access to capital, simplify legal, accounting, and regulatory issues,?and democratize entrepreneurship.?There is more capital looking to be deployed than ever.?On the one hand, this leads to more choice for founders.?However, it has unfortunately also led some in the?investment/venture space to look for opportunities to exploit the very people we want to support.?There is just no need for predatory behavior.?There is so much opportunity to contribute, profit, and?impact?our?entrepreneurs.??

You have certain?salient?moments in life?and?Jason Mendelson has given me more than my fair share.?One being the first time I heard him respond to being asked to sign an NDA.?His response:?“I get to?screw over one company one time?for one deal?and then my reputation is forever mud?and I never get to work with good companies again.?Nothing is worth that risk.”??Let's?pretend he said “screw”?and?“mud” …??What I learned that moment and has rung true for 20 years, is this is?an exceedingly small, very interconnected, very vocal community.?Lately, it seems some investors are forgetting how much reputation matters?and how quickly word spreads.?

?In a?recent,?“I can’t believe they are trying to pull this crap moment,”?I recently reviewed an NDA for an awesome friend?and his company.?The NDA read?standard, until buried in the middle of a paragraph I found a clause that read, basically -?“Nothing in this?agreement withstanding...we see lots of companies, and?innovative technologies,?and have been around a while?so?if we like anything you are doing, we will just say we learned it somewhere else and will steal your ideas and this agreement?cannot?be used to stop us in any?way.”??In short, “screw you.”???I am?not?kidding;?it was?this?direct?(just with more slimy legal terms).?

Another investor recently snuck in an unreasonably low valuation cap on a “Standard SAFE”?with a great founder?(sidebar- whenever someone says this is “standard,”?“market,”?“boilerplate,”?or “non-negotiable” pay close attention).?Unfortunately, the?investor?leveraged?their pedigree, frenetic?timing, and?the institution they were?associated with,?to convince the founder the deal was so “standard” it did not need attorney review. This?investor was predatory.?A few months later...months?mind you... the valuation of the company is a multiple of the valuation cap the “Angel” locked in for themselves.?As a result, the founder, the founder team, and the early employees are getting?crushed by dilution from this investment.?Our community has reached out to this investor to see if they would consider less punitive terms.?Their response has?been, “screw you.”??Got it.?You got your one deal.??

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You shook Sinatra's?hand;?you should know better.??

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