How To: Negotiate a Term Sheet
Just got a term sheet from a VC firm? Congratulations — that’s no small feat.
Beyond the price and amount of investment, it is likely to have come with a long list of terms and conditions. As we’ve written in the past, we think many of these create a misalignment between Founders and Investors. That’s why we’ve chosen to lead rounds by buying Common Stock — but this remains very rare in the industry.
Most lawyers will tell you the term sheet is “take it or leave it…that’s just the way it is.”
But is that really true?
Your ability to negotiate is a function of the style of VC firm, how much they like you and the opportunity and how competitive the round is.
What are these “terms and conditions”, why should you care, why do the VCs care and what room if any exists to negotiate? We share our thoughts below.
Before we dive in, it is worth noting that the “best” investor for you may not be the one who is most willing to compromise on the terms below or the one who provides the highest pre-money valuation. In fact, the best firms in the industry don’t win deals on terms or price. They win on reputation, value add, and rapport with the Founding Team.
As Bill Sahlman from Harvard Business School famously said: “From whom you raise money is far more important than the terms.”
From whom you raise money is far more important than the terms.
But if you can get those “best” investors to the table, you still may have a chance to improve the terms. Over the next week, we will release 5 blog posts to discuss:
There are Five Sections
Click on the title to navigate to the article.
As always, we’d enjoy your questions and comments.