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How to Negotiate with a VC

You're an entrepreneur who's made a presentation to an investor group. They've just made a venture capital offer for your business. Even in a tough economy, you can still negotiate a deal.

Instructions

  • Step 1: Go to the NVCA website Go to the National Venture Capital Association website to see a sample term sheet. This is a written investor offer of funding.
  • Step 2: Assess the deal leader Assess the deal leader, the VC leading the negotiations for the group. Go with your gut feeling that VCs are not bargain basement shoppers.
  • Step 3: Hire an experienced attorney Hire an attorney experienced in negotiating term sheets with VCs. Term sheet clauses can contain tricky legal language skewing the deal in favor of investors.
  • Step 4: Discuss term sheet elements with your attorney Discuss common term sheet elements with your attorney, such as the VC firm's funding format: common stocks, preferred stocks, or bonds.
  • TIP: Investors typically start with preferred stock. This gives them fund distribution priority if your venture fails and you liquidate assets.
  • Step 5: Discuss term sheet legal jargon Discuss term sheet jargon. "Anti-dilution" protects VCs against stock value dilution due to later stock funding rounds at a lower price than they originally paid.
  • FACT: A bad business deal, the former home of the Detroit Lions, the Silverdome, cost over $55 million to build in 1975, and was sold for $583,000 in 2009.

You Will Need

  • Internet access
  • VC term sheet
  • Gut feelings
  • Experienced attorney

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