Term sheet isn’t a deal. Same way an “accepted offer” on a house isn’t a purchase contract until you have an actual contract.
Clearly SoftBanks is having its challenges but this just sounds like normal deals falling apart during pre-closing due diligence. You don’t have a deal till you have a deal.
I think you're missing the point. There are established norms that are accepted by the industry during negotiations.
Another good example of a firm that is notoriously dishonest about term sheets is Global Founders Capital (the rocket internet people). They are known to blow out rival firms offers financially and then after everyone is out, come back and try to renegotiate at more onerous terms.
There seem to be two types of people debating with each other in this thread.
1. Some people that have real-world experience with raising money and term sheets. They understand what the norms and expectations are in addition to understanding the legal aspects.
2. Other people that lack the real-world experience and are just speculating without understanding the norms. They are only referring to the legal aspects.
^ The deal is never actually done until the money is wired and cleared into your account. Everything that happens before that including signed papers and handshakes are just negotiations.
Another way to approach interacting with other humans is to understand that the law only describes minimum expectations and isn't a replacement for ethics or common decency.
You can use all the tools of the law to disadvantage others but word will get around that you're a dirty dealer and it'll be their privilege to not do business with you anymore.
Yes, and the standard among VCs is to follow social and industry norms. Silicon Valley is an iterated game, and very few players are willing to play in a way that destroys future payoffs.
What makes you think the people with opinion #1 have real world experience and the people with opinion #2 don't? Maybe some people here just have a different understanding of what the norms are.
It also stands to be said that there is commonality between these types of "firms."
The two firms are essentially dictatorships masquerading as firms. What you get is a bunch of definitionally impotent lieutenants who go make deals and carry them to the 1 yard line and then the boss (Masayoshi or oliver) decide again as if nothing had happened before whether or not to execute.
Unless the bosses are the ones leading the deal, know that you there is zero good faith and a lot of risk as far as outcome goes.
Exactly. Just because you can walk away from a term sheet doesn't mean doing so doesn't make you a giant jerk. Try doing that regularly and see how long you last in this business.
Yeah, though part of due dill from founders side should reveal this - you ask past portfolio co's what kind of terms the firm leans to + their preferred process, and if their process is playing stupid partner games with stupid terms, you price that in to your negotiations. And yes, it's annoying + common, esp. the bigger and more diverse you go... . In theory you can add stuff like breakup and late fees: that's unusual in startup fundings, but the weird softbank-isms may make that kind of term more aligned.
I now treat VC as a funny form of enterprise sales, and this happens there too. Want a 6/7/8 figure deal? Same thing: has the group bought stuff at that level before, if so, what is the process? And, the more critical the deal, the more imp. you talk to folks who also recently ran the gauntlet.
Eh. It's not about the reneging its about the communication and intent.
From experience its a very small marketplace (esp with big checks). So there is a very high expectation that people act with longterm consideration of one another and subsequently their reputation. Just disappearing, or changing terms without a material change is dishonest period.
AFAIK, in contract law, an "accepted offer" is an actual contract, even if there's no paper record of it (though it may be a bit hard to prove acceptance without one). However, when someone puts their house up for sale, they're usually not offering it to anyone yet, rather they're inviting others to offer to buy it.
I think a term sheet is also just an invitation, not a binding offer.
It is in the realm of "tortious interference" to outbid others then fail to follow through with it, but it isn't generally a contract when two legally represented groups are agreeing over something which is expected to be defined on paper.
Term sheets do away for the need to speculate about whether there is a binding obligation or not - they always explicitly say that they are not binding, and then both parties sign and agree to that.
Industry standards are though that once the term sheet is signed, the deal is 99% sure to happen, unless there are serious problems discovered in due diligence.
You are generally correct that contracts do not have to have a paper record, however in the United States, it's usually a state law that real estate contracts have to be in writing. It's a legal concept called the statute of frauds.
Likely depends on the country - in England, on a house sale, either party can back out after an offer is accepted, free of consequences, until contracts are exchanged.
My wife's family is selling a house in Italy and it blew my mind that when you say you want to buy the house you have to give a portion of money (in this case I think it was 12000 euro) which you do not get back if the deal falls through and you don't buy the house.
The above not very precise as I am not involved in it and not especially interested. But the detail stuck with me as one of those other cultures are strange things.
In the US you have to put down an "earnest money deposit", which is sort of the same thing. You can get it back, but there are usually very specific rules about what conditions warrant getting it back, and "I didn't like the house" isn't one of them.
In all offers I submitted and both houses I bought, that was the case.
That also allows the buyer to get out for any reason within the financing contingency window (by just not complying with all the ridiculous paperwork demands from the lender, "oops, sorry, mortgage didn't end up coming through")
That would be a "Mortgage Contingency," which is common in California. Yes, you get back your earnest money if there is a mortgage contingency in the contract but you can't get a loan.
Does this work? For house buying, solicitors are often taking on first-time clients, and they don't have a lot of leverage against the client if the client decides to renege on the deal.
Solicitors get paid for work done until that point regardless, and I doubt sellers have that information when deciding whether to accept an offer, and they are who makes the choice to accept.
Sellers also pull out frequently - had that happen to me a few times. It's frustrating but it happens.
If a term sheet isn't a deal, and I kinda agree that it isn't, then what is an exclusive, six-month term sheet? Why would someone sign a six-month exclusive non-deal?
BTW, a term sheet is usually very specific about it being for discussion purposes only.
When term sheets say they are non-binding, they will usually say "except the sections about confidentiality and exclusivity". So those will be the only parts that actually are enforceable promises.
But the exclusivity period is typically 30-45 days. There would have needed to be some particular reason for six months, given how far off-market it is.
Some level of exclusivity isn't necessarily bad. The purchasing company doesn't want you using their deal to shop around. VC's are sheep, and having Softbank interested would generate lots of FOMA (Fear of Missing Out) amongst the herd.
However, 6 months instead of 30-45 days without a useful fee for non-execution sounds like the company wasn't in a good place to begin with.
1) something being legal, is not the same as being a reputational risk. If you get a reputation of quitting your job with no notice, well generally that's totally legal, but it will eventually get harder to get a job, all else being equal. However...
2) I think everyone knows that Softbank just had a very hard time, so I think this is both understandable (if things calm down for them then a year from now no one will hold this against t hem), and also the least of their worries (if I were looking for VC's right now, Softbank would not be at the top of my list regardless of whether I had heard this or not).
"Term sheet isn’t a deal. Same way an “accepted offer” on a house isn’t a purchase contract until you have an actual contract."
It's not a deal until the check clears. I've seen real estate and business deals fail at the very, very last moment. Sometimes people do amazing things at the last second.
Real Estate agents that play cute games between offer and contract like tweaking terms often find their offers at the bottom of the piles, some times lost entirely!
depends on their reputation and mode of operation before. If they always stuck to term sheets and now they are walking away it's news. Legal or not is irrelevant here. A lot of times CEOs shake hands and lawyers work the details...reneging even if it's legal (depending on how /where) it's damaging to your reputation.
Clearly SoftBanks is having its challenges but this just sounds like normal deals falling apart during pre-closing due diligence. You don’t have a deal till you have a deal.