Negotiations & Closing

Choosing investors to work with merely begins the process of settling on mutually agreeable terms that will govern the investment. Typically laid out in a term sheet and finalized in closing papers, the negotiation process of agreeing to these terms can be very taxing—not rarely resulting in the funding round failing to close. This section will help you navigate a funding negotiation so you can increase your chances of closing your round. It also offers resources on standardized term sheets which you can use to avoid much of the back-and-forth. 


Editor's Picks

Negotiating & Closing

Fred Wilson

You can do too much due diligence. It's important to talk to the market and hear what it is saying. But you have to balance that with other things; the quality of the team, the product, the user experience, etc. You cannot rely alone on due diligence, particularly early on in the development of a company and a market.

 

Fred Wilson

I never ever say that a specific provision is "standard". Nothing is standard. You either need it or you don't. Explain why you need it and most of the time you'll get it or something like it as long as both sides really want to make a deal.

 

 Babak Nivi

As soon as your opponent says he wants something from you, you have some positive leverage. You control what they want. You can grant them access or deny it. That’s why experienced opponents delay making offers — they don’t want to give you leverage.

 

 Babak Nivi

Some docs are too long and boilerplate to read, so this is how I read financing docs: (1) Read and understand everything in the term sheet. (2) Get a good lawyer because you probably don’t have one. (3) You probably can’t tell the difference between good legal advice and bad legal advice. So you will need a great advisor. 

 

Fred Wilson

Balance sheets and income statements are important to understanding a company. But they do not tell the entire picture. They don’t tell you if the team is solid. They don’t tell you if the product is any good. They don’t tell you if the market is big. And they don’t even tell you about all the costs and they don’t tell you about all the liabilities. So you have to dig deeper and understand what is really going on before putting your capital at risk. That is called due diligence and it is critical to investing.  And looking out for liabilities that aren’t reported on the financial statements is an important part of that.