I just saw the video and I'd like to say, "Mr. Rosen please accept 1% of my company as compensation for being on the board".

Rosen is the first angel I've heard admit a negative character trait; saying that he had been lazy and so have angels in general. That increases his credibility in my mind.

What I like about focusing on "early exits" is that it will increase the number of quality ventures that get funded. One complaint that I have often had as an entrepreneur is when I see low return ventures or ventures with no market get funded or win contests. It will be great when there are finally some contests where ventures are judged on their ability to exit early.

The latest post on Basil Peters' blog states that Google prefers to acquire companies before they are profitable. Google is providing the earliest exit possible. Angels in search of early exits are not likely to find something that gives them the potential to exit as early with as great a return as the opportunity I offer.

Google and all the smartphone manufacturers need my technologies if they are to remain viable contenders in the smartphone market. For over a decade we have been hearing that the smartphone is going to replace the desktop PC. We are now witnessing the dawn of that prediction becoming reality. Desktop PC sells are declining while smartphone sells increase even in a recession.

The war has just begun in the smartphone market. Shrinking desktop PC sells have forced Google and over half a dozen computer manufacturers to protect their existing market share by entering the growing smartphone market.

Just a few years ago we saw several phone manufacturers go out of business. We also saw that the cost of competition has become so prohibitive that in order to extend the economic life of chips the Symbian OS is now given free to all remaining manufacturers. We've seen Motorola scrap its own software and chips in order to cut costs.

The smart phone market is not going to support every computer manufacturer and every phone manufacturer selling similar products. We are going to see more go out of business as this war heats up.

The computer manufacturers will have a bigger war chest than phone manufacturers because they can rely on profits from their computer business while they work to reduce the profits of the phone manufacturers. But software companies like Google and Microsoft may have even larger war chests as they accumulate profits from both PC usage and Smart phone usage.

This war creates an early exit for the opportunity I offer.

Incentivizing Success In The Term Sheet

If being fair and friendly to both sides is the goal, I recommend following the example of Stanford University. We know that Stanford's returns on technology transfer are better than most Angel groups. We also know that large universities are in competition to attract the best and brightest researchers to their campuses. Therefore if Angels and VCs follow their model, they should attract the best opportunities.

In order for Basil Peters and Dan Rosen to get what they want in their dream term sheet, such as getting compensated for being on the board of companies they invest in, it is going to have to be accompanied with some big changes in how Angels have been doing business. Both Rosen and Peters talked about being fair or friendly to the entrepreneur several times, but both of them have left unchanged the aspect of the negotiating process that is the most unfriendly or most unfair to the Entrepreneur.

First the issue of getting compensated as a director by the company one invests in. Every single Angel claims to add value and some love using the words intangible and immeasurable; immeasurable in the sense that it is too great a value to be quantified. However, the past decade of many failed investments has shown us that in many cases it has been immeasurable because it has been too small to measure.

To be considered for compensation Angels are going to have to do more than the typical hype. Frank has used the criticism of entrepreneurs acting like they are God's gift to investors, but we see angels doing the same on both sides of the fence. Acting like they are God's gift to entrepreneurs and God's gift to their fellow angels whose money they manage for a fee. Angels seeking compensation are also going to have to do more than rely on the stats of their group or the venture industry in general. They are going to have to quantify the value they add in terms of tangible needs of the venture and when they don't deliver the compensation should be forfeit just as they require founders to forfeit shares when milestones are not met.

Depending on the needs of the venture, some angels will be more valuable than others. The video seems to assume that one angel is as good or as qualified as another and that there will be no problems or shortcomings in any angel's participation on the board. Shortcomings of the entrepreneur and venture are discussed but not shortcomings of directors.

The aspect of negotiation that is most hostile toward entrepreneurs is agreeing on the shares that the entrepreneur should retain. To begin with, valuations are a figment of our imagination that we agree to pretend is real or factual. Then there are conditions that if not met require the entrepreneur to give up additional shares. We've heard angels on The Frank Peters Show say that if the board replaces the founding CEO he should give up all his shares. That goes against the logic that the technical founders are supposes to be replaced eventually. The premise leading into negotiations is both sides trying to acquire the potential of a large exit even at the expense of the other side.

If we are sincere in being fair and friendly toward both sides, we can take a lesson from how Stanford University handles technology licensing. One third goes to the university, one third goes to the department of the inventor(s), and one third to the inventor(s) weather it be faculty or student. There is no arguing over shares and percentages. But Stanford insists that the inventor has to understand that the businesses buying the licenses are also making a huge investment in bringing the technology to market and they must be given the opportunity to recoup that investment and therefore at the beginning there may be reduced or deferred licensing fees.

There is no sense of fairness in venture negotiations that require founders to regulate themselves out of the possibility of a large exit based on an imaginary valuation. It is much more fair and friendly to say that the value of the founders shares are reduced or deferred until the investors have made "X" return on their investment. It could even be a sliding scale, as the return to investors achieves certain milestones, the value of the founder's shares increases.

Future quality deals belong to those investors who are willing to say that if the opportunity returns "X" amount the entrepreneur is entitled to "Y" amount. The old argument of "the greater the risk the investor takes the greater the potential reward" is not rejected by this model as the reduced or deferred value is still negotiated.

This model ensures that the founding team is always properly incentivized. Just as in the licensing market, this model ensures that the market is incentivized to purchase the license.

With arbitrary valuations there is always the risk that someone may feel like or may not be treated fairly. As valuations and shares are negotiated both sides are guessing at what division of the pie will lead to what amount of return.

There is no reason to take the risk that the prediction will not match up to what is fair. It is simpler, faster, and easier for the investors in a round to identify the return they require to satisfy any period of deferred or reduced value to the founders. In other words an actual dollar amount can be identified rather than a hoped for one.

The founders and investors can agree on a minimum return for each party and the priority of each party to receive their minimum return. After those minimums are met, the founders and investors can then share in any additional returns without either party risking being left out from fairly sharing any possible large returns.