Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist

How do you actually close the deal? Separate it into two activities: the first is the signing of the term sheet and the second is signing the definitive documents and receiving the cash.

If you want to create a competitive process, allow at least three to six months to raise money.

In the executive summary, include the problem you are solving and why it’s important to solve. Explain why your product is awesome, why it’s better than what currently exists, and why your team is the right one to pursue it. End with some high-level financial data to show that you have aggressive but sensible expectations about how your business wi

The right of first refusal is not a big deal, and in some cases it’s good for you. But make sure you define what a major investor is and give this only to them. At a minimum, you can make sure that shareholders get this right only if they play in subsequent rounds.

Finally, in no case should an entrepreneur let an investor double dip and receive both a discount and warrants. That’s not a reasonable position for investors to take—they should either get a discount or get warrants.

There are three conditions to watch out for since they usually signal something nonobvious on the part of the VC. They are:

The best way to negotiate a higher price is to have multiple VCs interested in investing in your company.

After you’ve started to engage with a particular VC, make sure you understand their process. A few will tell you, but most won’t. After you’ve had a second meeting, ask what the process is going forward.

Regardless of the actual thresholds, it’s important to never allow investors to negotiate different automatic conversion terms for different series of preferred stock.

In a nutshell, venture debt availability, loan size, and deal terms correlate to the lender’s assessment of the company’s ability to raise more equity.