Summary:
AI founder departures like Andrew Tulloch's exit from Thinking Machines are challenging venture capital norms and risking billions in investments.
Venture capitalists may need to add key-man provisions and adjust founder vesting schedules to protect their interests in high-stakes AI startups.
The situation highlights a skewed alignment of interests, with VCs investing heavily in people who might leave for roles at companies like Meta.
Firms like Menlo Ventures are proactively clarifying terms, such as co-sale rights, to maintain control in volatile founder scenarios.
This trend could reshape venture capital term sheets, moving away from purely founder-friendly approaches to include more protective clauses.
Venture capitalists may need to spice up the vanilla term sheets they give to founders to protect their own investors.
Driving the News
Andrew Tulloch has left Thinking Machines, the AI lab he cofounded with fellow OpenAI veteran Mira Murati, for a job at Meta.
- Thinking Machines put a positive spin on the move, saying it's "grateful for what [Tulloch] helped build here," but that's cold comfort for those who just plugged $2 billion into the AI upstart at a $10 billion valuation.
- It's the latest in a series of AI founder departures, sometimes structured as acqui-hires, that have forced remaining stakeholders to grin and bear it.
Zoom In
Venture capitalists could consider adding key-man provisions to their term sheets, or at least those tied to outsized checks. If it works for the funds themselves, why not for their portfolio companies?
- VCs constantly talk about how they invest more in people than in ideas or products, so shouldn't they have an out if the people leave?
- Another option would be to change founder vesting schedules, many of which now include 25% upfront and 40% within a year.
For the Record
We don't know details of Tulloch's vesting schedule with Thinking Machines, nor other financial terms of his departure.
- Plus, his situation is particularly thorny because Thinking Machines' lead investor is Andreessen Horowitz — the firm led by Meta board director Marc Andreessen.
Behind the Scenes
Adding more teeth to term sheets may run afoul of venture capital's "founder friendly" culture, but we're beginning to see some of it in other areas.
- For example, sources say that Menlo Ventures is telling founders during initial funding discussions that it will participate in secondaries when its position is 10x cost basis and the founder is selling.
- This is really just an affirmation of existing co-sale rights, but it's notable that Menlo is making its intentions explicit.
The Bottom Line
Alignment of interests is a cornerstone to startup investing. Right now, it's looking a bit skewed.
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