A signed term sheet was worth nothing once Instinct objected

A signed term sheet from one of Europe's best-known venture funds turned out to be worth nothing.

Index Ventures had agreed to lead Town's Series B at a $1 billion valuation and then withdrew from the deal entirely, Upstarts Media reported on 3 September. The reason was not a lawyer. It was Instinct, the rival AI assistant startup whose own round Index was co-leading, which complained to Index about the conflict. Conviction, which held stakes in both companies and had planned to join, pulled out as well.

Town closed anyway. Ninety million dollars, co-led by Forerunner and Menlo, with a16z and First Round following on.

The number that matters here is zero

That is what the signature was worth once a portfolio company objected.

A week earlier Instinct had told the Wall Street Journal it had raised $250 million at a $2.5 billion valuation, co-led by Index and Benchmark, taking its total to $350 million. The company is fourteen months old, run by a former Sierra researcher named Noah Shinn, and its product is an assistant you text or phone.

Town, built by Plaid's former chief technology officer and a former Google applied-AI product director, does the corporate version of roughly the same thing. The interfaces have been converging for months.

Two companies, one category, one investor on both cap tables (and on both boards' reading lists, presumably).

The old norm survived because founders could not do anything about it

Newcomer, which broke the original story that Index was leading Town, recorded an investor's shrug at the overlap. Greylock once backed Facebook and LinkedIn (nobody died). Quite true, and for twenty years that is simply how thesis investing worked, because the companies had no leverage to object with.

They have some now.

Our read is that this is a power transfer dressed up as a spat. When a fourteen-month-old company can raise a quarter of a billion dollars in a few weeks, the scarce thing in the transaction stops being money and starts being exclusivity, and it is the founder who owns it.

Index did not lose this deal to a legal conflict, because there was not one. It lost the deal because a company it had already funded made a phone call.

The phone call outranked the signature.

Somebody will write this down as a clause

Within twelve months we would bet on a large AI round being reported with an explicit category-exclusivity commitment from the lead investor. Not a handshake. A clause, with a definition of the category attached, which is where these things usually go wrong. If instead the norm quietly returns to funds holding both sides, this was one founder's temper rather than a change in the market.

Worse off are the multi-stage funds whose whole model is owning a thesis rather than owning a company. If backing the second-best assistant startup gets you thrown out of the best one, thematic investing collapses into a single bet placed early, in the dark, with no way to average in.

And the runner-up in every hot category has just learned that some capital is unavailable to it for reasons that have nothing to do with its business. Do you price that into your next round, or pretend it is not there?

Is Town worse off for any of it?

Probably not. Forerunner and Menlo are perfectly good leads, and ninety million dollars at a billion is ninety million dollars at a billion.

So watch the next hot category instead. If two firms end up on both sides of it and nobody blinks, we were reading a personality. If the term sheets start carrying the clause, we were reading the market.