Venture Deals summary

Imagine you are trying to get a venture deal: how many parties do you think are involved? A venture deal involves more than just the entrepreneur and VC. In fact, once all the lawyers, mentors and so on have been accounted for, there could easily be six or more people at the negotiating table.

Still, no matter how many people are involved, entrepreneurs should always focus their attention on the investors (the VCs).

If you want to make the most out of your relationship with venture capital, you’ll need to understand how it works.

Venture capital funds are complicated networks of investors, managing firms and companies, and the relationships among them are not always easy to understand. However, there are two insights into the structure of venture capital that are helpful for all entrepreneurs:

Today’s investment world is full of intricacies, meaning that a simple handshake is no longer enough to ensure that everyone understands and adheres to an agreement. Nowadays, everything is recorded in term sheets, more or less standardized documents that summarize the financial agreements between the VC and entrepreneur.

The most important components of term sheets are the ones that involve money. Here, entrepreneurs must be aware of investors’ tricks and pay close attention to detail if they don’t want to end up losing a significant share of future returns.

Before you take your great business to VCs in hopes of getting funding, you should first prepare a few things to avoid potential disaster:

Most obviously, make sure that you’ve prepared all your materials and presentations in a clear and compelling way.

You’re at the negotiating table with your investor, hammering out the details to your big break into the business world. You’re quite happy with the results so far, but your lawyer gets stuck on a trivial detail and starts behaving rudely. You begin to panic – not only because his rude behavior is embarrassing, but also because your aspirations seem to be going up in flames before your very eyes!

Obviously, you don’t have a good lawyer! A good lawyer will understand how to arrange and close an investment deal as well as how to keep the focus on the most important issues concerning money and control.

Imagine that you’re a young start-up approaching an experienced investor. As you enter her office, you feel nervous that you’ll make a mistake and lose her interest. After all, why should she listen to you anyway?

If you follow these steps, then you can rest assured that she'll listen and that you’ll get what you want!

We negotiate every day – with our friends, family, significant others and even our coworkers. But often, we don’t think about how these decisions are actually made.

However, when it comes to business negotiations, you don’t have the luxury of being so laid back. Here are a few rules for when you’re sitting across from a potential investor at the negotiating table:

As an entrepreneur, there’s a lot riding on the outcome of your negotiations with potential investors. Here are a few tips that will help you avoid some of the most common blunders:

If you don’t know what to do or say, then wait for them to act first. In fact, in the finance world, it’s better to react than to act! When you enter negotiations, no one knows exactly what the other wants, and it’s better to let the person on the other side of the table reveal her hand first.