Q&A with Aumni’s President and Co-founder Kelsey Chase on the Success and Future Outlook of the NVCA
In the summer of 2020, Aumni and the National Venture Capital Association (NVCA) announced their partnership to provide extensive market insights into deal terms found in executed venture financing agreements. By analyzing over 35,000 transactions, representing more than 17,000 unique investors and spanning a decade of data, NVCA and Aumni have added term-specific analysis to its most popular model legal document: the term sheet. The free “Enhanced Model Term Sheet” contains over 150 hyperlinked data points, detailing the usage and frequency of specific terms found in the model agreement.
Following the partnership announcement with NVCA, Aumni’s president and co-founder, Kelsey Chase, in this Q&A shares a glimpse into the progress of the initiative along with user feedback:
Q: What is the background on the NVCA and Aumni partnership?
KC: As a former deal lawyer, I was routinely frustrated by the lack of access to market data around venture capital deals and private offerings. Given that the bulk of the market including entrepreneurs, investors and outside counsel actively use the NVCA’s model agreements to document transactions, and coupled with the fact that much of the investment data that Aumni analyzes maps closely to the NVCA forms, we believed that we had an unparalleled opportunity to take an entirely unique approach to enhancing the venture dealmaking process.
With that in mind, we set out to provide detailed market insights keyed directly to the most important legal and economic provisions within the NVCA documents as Aumni analyzes hundreds of unique data points in these transactions, extracting key legal rights, financial terms, and economics.
As many venture dealmakers can appreciate, prior to Aumni this information was tremendously difficult to analyze at scale, and with very little access to broader market trends and insights. Given our focus on data intelligence and especially the analytics that focus on the NVCA’s market leading model legal documents, it felt like a natural fit to collaborate and build the Enhanced Model Term Sheet.
Q: What is the newly “enhanced” term sheet?
KC: To set the stage, a venture term sheet is the initial written document (typically non-binding) that outlines the key economic, legal and financial terms and parameters of a venture capital investment. In addition to the definitive NVCA model financing agreements, the NVCA also makes available a long-form annotated venture term sheet. Most final/executed term sheets vary in terms of length, depth and term coverage, but ultimately the term sheet sets the stage for the hundreds of pages of venture financing agreements that ultimately follow and typically get negotiated between the investor(s) and the company, and each of their respective legal counsel.
Now, when you download the NVCA Enhanced Model Term Sheet you can delve into specific economic and legal rights that are embedded with market benchmarks and parameters. For example, we present data on the frequency of certain rights across different deal stages, including redemption rights, pay-to-play rights, registration rights, and much more. We also track commercial terms and the respective investor counsel fee caps. It’s really quite simple, but effective - as you read through the Enhanced Term Sheet you’ll find links embedded alongside key terms that take you straight to market analyses and benchmarking data, all right there inside the document. This initiative is really highlighting Aumni’s breadth and depth as data analytics experts and applying that expertise to some of the NVCA’s great resources. It’s really exciting to bring data to market that I wish I had as an attorney.
Q: Can you share a bit about methodology and how you gather and analyze the data?
KC: Aumni ingests final closing documentation and analyzes hundreds of legal and economic data points. As an added layer of data integrity and fidelity, lawyers quality assure the data to ensure accuracy of the analysis, and routinely flag inaccuracies or discrepancies in these transactions which our customers value for a variety of reasons including internal reporting and data analysis, as well as downstream reporting to limited partners. At Aumni, we place a tremendous amount of value, process and effort around giving our customers accurate data that is of the highest fidelity.
Q: Can you share what types of firms you work with to establish context around your data sample?
KC: We work with venture firms of all different sizes and scale which offers us a broad sampling of the market and deal data, including various stages, geographies and industries. From emerging fund managers with small $AUM to multi-billion dollar investment firms, Aumni is capable of analyzing a broad array of alternative investments and private offerings.
Q: There have now been over 1,600 downloads of the NVCA Enhanced Model Term Sheet. What types of specific stakeholders in the venture industry have been most interested in this data?
KC: It has been a fairly even distribution of folks downloading the term sheet. Many were from the venture industry – general counsels, CFOs, and general partners. We also had many practitioners at outside law firms. Interestingly, founders and management teams were also a very active group downloading the enhanced term sheet.
Q: What kind of feedback have you received from those who downloaded the term sheet so far?
KC: We surveyed those who downloaded the term sheet and asked them to share their thoughts on its value and the significance that they felt it brings to the broader ecosystem. Most of the respondents felt that the data plays a key role in standardizing future transactions and improving deal efficiency. The leading response was a desire to use the market data to identify trends in venture capital deals. We also saw interest in more data-driven decision making to reduce transaction costs.
Q: Were there any particular requests from those who downloaded this term sheet?
KC: Much of the feedback centered around a consistent theme - getting more granular access to the data points based on industry, sector, and geography. We also received requests for more frequent reporting, particularly showing quarter-over-quarter changes to certain deal terms. More frequent and real-time data is likely in peak demand during particularly uncertain market conditions such as the current COVID environment.
Q: You focused on one of the NVCA's model legal documents. Did you get any feedback regarding the other primary NVCA financing agreements?
KC: Yes, we saw strong interest in seeing data in all of the core financing agreements. Not surprisingly, we also observed the most interest around the Investors’ Rights Agreement, which details the rights of venture investors by and among themselves and the company. Given that much of the deal negotiations happen in or around the IRA and that the IRA primarily outlines the expectations and behavior of the company and the investors with respect to information rights, additional rounds of financings, IPOs, etc., it’s no surprise that respondents wanted more granular IRA-focused market data.
Q: Are these additional documents focus areas for Aumni?
KC: Absolutely. The entire volume of data in an investment isn’t captured in a single document, so to thoroughly analyze the market, we study the entire closing set at a very fine level of detail. With some of this recent feedback, we're planning to continue expanding our analytics to provide more insights on additional document types and private offering structures.
Q: Are there any other types of data that you want to incorporate into this initiative in the future?
KC: As you look at the venture markets today, it is widely understood that both investors and entrepreneurs are willing to close deals at a record pace, while also taking into consideration the path to exit for most companies is continuing to lengthen. While Aumni’s mission is to provide the industry with the most timely, accurate and granular deal-level analytics, we also want to ‘complete the picture’ in the private capital markets. Going forward, you can expect Aumni to provide analyses on subjects like diversity and inclusion, secondary liquidity, and other emerging trends that are beginning to drive enterprise value in the startup community.