Term sheet hacks: get a great deal by Babak Nivi

VCs have a lot more expertise when it comes to term sheets. They will use this expertise to protect their interests and those of their investors. Startup lawyers often have some ties with the VCs so they cannot be relied on blindly. In general, founders should put some effort into negotiations.

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  • Topic Tags

Series A funding, negotiation strategies, good lawyers, VC advantage, information asymmetry, founder leverage

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Why is it important to be prepared and able to negotiate term sheets?

  • Summary bullet points
  • When negotiating term sheets, there is an asymmetry of information between VCs and founders
    • VCs are experienced and have seen the process through many times
      • VCs know what the next rounds and the future of the company can look like and take actions to reap benefits in the long term
    • The term sheet is fairly standardized reflecting decades of VC industry expertise
    • They have high quality legal and financial counsel
    • VCs ultimately serve their fund and their investors (LPs)
  • Lawyers working for startups often are in the professional or social network of VCs as well
    • VC funds bring them a lot of business
  • Leverage is fundamental in negotiations
    • Alternatives, in the form of competing investors, are powerful leverage for the founder
  • Strategies to maintain control of the company can be
    • Creating a board that reflects ownership
    • Making a new board seat for a new CEO
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