This study examines the standardization of venture capital (VC) contracts since the release of the National Venture Capital Association (NVCA) model charter in 2003. Using nearly 5,000 charters issued in connection with a startup’s Series A financing, the paper finds a significant increase in the model’s adoption from less than 3% of charters in 2004 to nearly 85% by 2022. Adoption of the Delaware-oriented charter has also been accompanied by the growing dominance of Delaware incorporation, with Delaware charters growing from 54% of sample charters in 2004 to 100% in 2022. High adoption rates among the six most active law firms servicing U.S. startups largely explain the success of the standardization project.
While cosine similarity analysis reveals charters are overall more similar in 2022 than in 2004, the capital structures of Series A startups have also become substantially more complex. Series A charters authorizing only a single class of common stock and a single series of “Series A” preferred stock constituted 86% of charters in 2004 but constituted just 5% of 2022 charters, while 30% of 2022 charters had either 2 classes of common stock or 3 or more series of preferred stock. The additional complexity arises almost entirely from multiple securities reflecting prior seed stage financing. In contrast, efforts to add founder-friendly capital securities — such as dual class common stock and founder preferred stock — have made only modest inroads. Overall, the story of VC contracting over the past two decades is largely one of standardization, albeit with growing complexity around startup capital structures due to the increasing importance of seed stage capital and changing expectations regarding what constitutes a “Series A” startup.