How to stay nimble when negotiating for VC fundraising
A key component of negotiation is staying nimble and responding to changes in the situation as they arise. You don’t want to miss out on VC fundraising because you were too rigid and failed to adapt.
After all survival of the fittest is all about adaption to change. From my own experience with fundraising negotiations here are five things you can do to make sure you stay nimble.
Focus on these five terms – A lot will be discussed during your negotiations. The five terms that you need to focus on however are, valuation, stock option pool, liquidation preferences, board seats and voting rights and control. You need to know your position regarding these terms and stick to it.
Engage but know your limit – If you are not even close to getting the outcomes you wanted in the negotiation then you need to be prepared to walk away. If you are going to walk away from the negotiation then communicate the reasons calmly and logically so the VC may reconsider their position. You can only do this once.
Never move first – Never make the first offer, never present a draft term sheet and never discuss valuation numbers. Always wait for the VC to make the first move, let them reveal their position and negotiate from there. If you must give them a number, then give them a range.
Don’t lie (or overly bend the truth) – During your negotiation don’t lie about alternative offers or exaggerate their terms. Doing this risks your bluff being called and you missing out on fundraising altogether. Always negotiate honestly but with leverage.
Anchor a part of your position – Select a few points that are important to you, determine your position and stick form to that during your negotiation. You will have to compromise on some points, that is the art of negotiation but always aim to get what is most important to you.
Negotiating for VC fundraising can be stressful and no matter how well you plan it will never end up how you first thought. Be prepared to be flexible and nimble in your approach while still maintaining your core position.