Analysts: EDF Ventures’ deal terms aren’t that harsh

August 21, 2008 | Anthony Ha | Comments |

Updated

In the wake of EDF Ventures‘ subpoena demanding information about one of its critics on controversial VC-rating site TheFunded, more scathing commentary about the Ann Arbor, Michigan firm has come to light. For example, the commenter targeted by EDF says the firm has “very harsh deal terms.” But does that criticism hold any water? Not really, according to the analysts at VC Experts, who examined four of EDF’s recent deals and found “nothing too out of the ordinary or harsh.”

VC Experts looked at anti-tampering company Arxan Technologies‘ $15 million third round, medical device company ValenTx’s $6 million first round, Xtera Communications‘ $52 million second round and Biosurface Engineering Technologies’ third round. They used a proprietary algorithm called the “cost of capital benchmark,” which ranks deals on a scale from “fully company friendly” to “fully investor friendly.” It turns out the deals were all over the place: Arxan’s deal was rated much more investor friendly than the industry standard, ValenTx’s was rated much more company friendly and the other two deals were in between.




All the data really shows is that some startups got good deals and some didn’t — it’s hard to draw conclusions about EDF’s 26-company portfolio from four deals alone. But it’s worth reemphasizing VC Experts’ point that there was nothing out of the ordinary.

And the range certainly illustrates one of the problems with taking comments on TheFunded (which has a business relationship with VentureBeat) at face value. Not only could those comments come from someone with a grudge, they also reflect a limited perspective. The chief executive of Arxan, for example, might have a very different take than someone at ValenTx. (Although there are signs that TheFunded commenter in question isn’t an entrepeneur at all.)

Update: TheFunded points out some of the shortcomings in the analysts’ “cost of capital benchmark” in the comments section below.

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About the Author, Anthony Ha

Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.

  • This information also underscores the difficulty that EDF would have in prosecuting "opinion" which is essentially what TheFunded is showing. "Very harsh terms" is a subjective opinion and I imagine is widely covered under free speech law in the US. EDF might have been better advised to counter the commenter's opinion with those of their own, rather than getting their attorneys involved. The resulting perception in the entrepreneurial community may have been better without the legal pursuit.
  • I agree, Don, although I also believe that "very harsh terms" wasn't necessarily what EDF was responding too -- certainly it wasn't the only negative comment -- that's just what VC Experts chose to examine.
  • "Harsh terms" are not fully measured with "the cost of capital benchmark," though the benchmark seems to cover many of the key investment metrics from reading the Web site.

    The one area glaringly missing from the benchmark is control provisions, which normally come in the form of controlling Director seats or the ability to remove a CEO for missing milestones, etc. Most entrepreneurs view losing control of a company as harsh, even if the economics are otherwise fair.
  • Hmm, good point.
  • That's true that we don't capture control provisions, however we do capture votes. We only provide terms that we are able to validate from a company's Amended or Restated Certificate of Incorporation rather than leaving it to a pure guessing game on what the terms might have actually been. These filings are available for vieiwing to our subscribers.