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Capital Waters – Time for a Change

When we launched Capital Waters five years ago, we did not do anything extraordinary. We published a full set of Dutch law governed early stage transaction documents online. Freely downloadable. We did it because nobody else did it. It turned out to be a big success. Since then, the documents have been used by many investors, founders and advisors and we are happy that various incubators, accelerators, startup foundations, investors and investor associations have endorsed the initiative. Yet, we are radically going to change our format. Why? We will explain.

We founded Capital Waters with the goal of making early stage investing easier, to reduce time spent on negotiating deals and to reduce legal fees paid to lawyers. If we look back, we have to admit that we have reached this goal only partially. People use the documents, or part of the documents, add their own investor friendly or founder friendly flavor or deal specific elements to it and present it at the negotiation table as their own. The other side of the table is unaware which part is Capital Waters and which part is the add-on and therefore the full agreement needs to be reviewed in detail and negotiated on.

Creative Commons – the new format

We understand that each deal is different and that each investor or founder has its own preferences, but wouldn’t it be nice to know which part originates from Capital Waters and which part is added by the investor or founder? And wouldn’t it be even better if the party presenting the first draft would be forced to show the differences with the Capital Waters standard, so the discussion can focus on these few differences instead of the full agreement, including boilerplate and standard clauses? This is what we are trying to achieve with the new Capital Waters format.

As from today, the new Capital Waters documents can only be used under two restrictions: 1. You have to show the other side of the table on which parts (if any) you deviated from the Capital Waters standard, and 2. You have to keep a small Capital Waters sign in the header of your contract to make clear that you have followed the terms of use. In software, people are familiar with these restrictions under the license Creative Commons BY-ND 4.0. Or just ‘comply or explain’.

Expert Panel

At the same time, we wanted to put more weight on the status of the Capital Waters documents and make sure everyone, being an investor, founder or venture capital lawyer feels comfortable using the documents. Therefore, Benvalor as founding partner of Capital Waters has taken a step back to make it a joint initiative of likeminded people in the VC industry rather than an initiative closely linked to one particular law firm. We are operating Capital Waters now in a fully independent stichting (Stichting Capital Waters), we have removed the header ‘powered by Benvalor’ from the documents in the new format and have asked a number of experts of VC funds, startups and specialized venture capital law firms to support the initiative and join the new Venture Capital Expert Panel. We are grateful that the following people accepted the invitation to join our panel:

  • Harm de Vries, Innovation Industries
  • Paul van der Zanden, BOM Brabant Ventures
  • Annemieke Jordans, startup founder
  • Floor Veltman, Kennedy Van der Laan
  • Patrick Munk, Vesper
  • Antony Jonkman, LXA
  • Maurits Bos, Benvalor

We have asked the panel to review the documents and suggest amendments where necessary. They all did in a very constructive way. We have discussed all suggestions made and have – on various items – updated the Capital Waters Subscription and Shareholders Agreement Preferred Shares, now divided into a separate Subscription Agreement and separate Shareholders Agreement. While making the documents better thanks to the panel’s feedback, we did not give in on our principle of making available fair and neutral transaction documents that are as simple and short as possible.

Step by step

We take this step by step. Today the Capital Waters Subscription Agreement Preferred Shares and the Capital Waters Shareholders Agreement Preferred Shares are published in the new format together with a Term Sheet for Preferred Shares deals. There are many more documents on Capital Waters, including a convertible loan and a common shares version. In the coming year we will convert them all to the new format. It takes some time because we want to do it good and of course involve the Expert Panel. The ‘old’ documents can still be used under the ‘old’ license (no restrictions).

If you now see the Capital Waters logo in the header of a document, you know that it is good stuff, that any changes made to the Capital Waters standard will be shown explicitly and that discussions can focus on these deviations. This will make doing early stage deals faster & easier, at least that’s what we aim for.

Best regards,

Don Ginsel & Sjoerd Mol

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