If you’re waiting to receive your term sheets and therefore about to start negotiating you need to make sure you are prepared. These are likely to be the most important negotiations of your life and you don’t want to look back with regrets that you wish you had prepared more.
Here are some things I believe you must do to set yourself up for negotiating success.
Prepare, prepare, prepare – You need to be prepared before going into the negotiations. You need to have given a lot of thought to how you want the negotiations to go. Think about how they could go, and what is the absolute minimum you will accept before you walk away. You must know this ahead of time. You must negotiate from a position of logic and not emotion and be prepared to walk away if you are not getting what you want.
Create a schedule – Even before your first pitch, you should put together a schedule about how the VC fundraising process should progress. There are heaps of resources available online that outline this process for you. As the fundraising process continues track it against your schedule and update it as required. This will help you manage your expectations around timing.
Build a relationship – Not to make friends but so that you know everything you need to know going into the negotiation. Understanding your counterparty’s position, personal style, strengths, weaknesses, point of view, personal preferences and -motivations will give you leverage during the negotiations.
Lawyer up – Know your limitations and get yourself an experienced lawyer. The VCs do these negotiations all the time, they are experienced in what they do. Without a doubt, you will be the least experienced person at the negotiating table. The way to even this out is with an experienced lawyer.
Research and learn – Knowledge never hurts. There is a whole internet full of resources about negotiating and term sheets. Read up as much as you can. Everything you learn that you didn’t know before puts you in a better position.
Set yourself up for negotiating success by adopting these tips. Fundamentally, winning in a negotiation is about being prepared and going in with your eyes wide open on what to expect.