A signed term sheet was worth nothing once Instinct objected
Index Ventures withdrew from Town's $1bn round after the rival assistant startup it was already backing complained, and Conviction went with it.
Index Ventures signed a term sheet to lead Town's $90m round at a $1bn valuation, then withdrew from the deal entirely, Upstarts Media reported on 3 September, after Instinct — the rival AI assistant startup whose $250m round Index was co-leading — complained about the conflict. Conviction, which also held stakes in both companies, pulled out too. Town closed anyway, co-led by Forerunner and Menlo, with a16z and First Round following.
The number that matters in that paragraph is zero. That is how many dollars a signed term sheet from one of Europe's best-known funds was worth once a portfolio company objected.
ICYMI the scoop that set VC group chats ablaze yesterday 🔥
I broke the story of late drama around Town's new round at $1B - and how a top-tier firm, Index, pulled back its lead termsheet following a complaint from rival AI assistant startup Instinct 👀
t.co/a8FP9pLNfx
A week earlier, Instinct had told the Wall Street Journal it raised $250m at a $2.5bn valuation, co-led by Index and Benchmark, taking its total to $350m. The company is fourteen months old, run by a 23-year-old former Sierra researcher named Noah Shinn, and its product is an assistant you text or phone. Town, built by Plaid's former CTO and a former Google applied AI product director, does the enterprise version of roughly the same thing (the interfaces have been converging for months).
Two companies, one category, one investor on both cap tables. Newcomer, which broke the original Index-leads-Town story, noted an investor's shrug at the overlap: Greylock once backed Facebook and LinkedIn. That was the old norm, and it survived because founders could not do much about it.
They can now.
Our read is that this is a power transfer disguised as a spat. When a fourteen-month-old company can raise a quarter of a billion dollars in weeks, the scarce thing in the transaction stops being money and starts being exclusivity, and the founder is the one who owns it. Index did not lose a deal to a legal conflict (there wasn't one). It lost the deal because a company it had already funded made a phone call.
The phone call outranked the signature.
We would expect that to get written down. 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. If instead the norm goes back to funds quietly holding both sides, then 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 a company. If backing the second-best assistant startup gets you thrown out of the best one, thematic investing turns into a single bet placed early, in the dark, with no way to average in. And the second-place startup in every hot category has just learned that some capital is unavailable to it for reasons that have nothing to do with its business.
Does any of this leave Town worse off? Probably not.
Forerunner and Menlo are perfectly good leads, and $90m at $1bn is $90m at $1bn.
But watch the next hot category, because that is where you will see whether this sticks. If two firms end up on both sides of the next one and nobody blinks, we were reading a personality. If the term sheets start carrying the clause, we were reading the market.