I fully support Obvious Ventures’ introduction of the World Positive Term Sheet and the idea that venture capital term sheets should include details on the core non-financial values of the company. I’m less certain, though, about the suggestion that the values section of the term sheet should not have legal significance. If these values are important – perhaps equally or more so than financial return – then why not reflect them in some way in the investment documentation and/or the company’s governance documents?
Without legally binding terms, the company and investors may not be held accountable to the values expressed in the term sheet. Requiring measurement and reporting on impact is an easy place to start. No investor would agree to invest in a company without a legal requirement for regular reporting on financial performance. If an investor is equally concerned about performance with respect to social and environmental indicators, then why rely on a handshake understanding with respect to tracking and reporting on non-financial performance instead of a legally binding provision?
If you would like to learn more about how to incorporate legally binding commitments with respect to social and environmental matters, check out the impact terms project. It includes sample term sheet language for a variety of legally binding non-financial commitments, including measurement and reporting on impact, transitioning to a benefit corporation or certified B Corp, and special voting rights to ensure social and environmental values are upheld.