Inspired by Isabelle Gallo, Principal at Breega
5 min read
At Breega we say the early-stage founder/ venture capitalist (VC) discussion and negotiation phases of a fundraising round is a bit like a dance. Mastering the steps well should put you firmly on the pathway to success…or at least get you the funding you’re looking for. Let’s take another look at those steps shall we? Have you got them down yet ?!
Doing the dance? Make sure your feet are comfortable and your shoes are shiny!
Make sure your company isn’t running out of cash when you’re entering into discussions with VCs. Your shoes should be perfectly polished before you ask anyone to dance!
Master the timing of your steps and keep them quick and neat
Engage with several VCs at the same time, keep discussions simultaneous and get everyone to the Term Sheet phase at the same time. Keep each VC interested by letting them know that discussions are going well with the others.
Thow in some fancy moves but make sure your style remains authentic
If you’re open and honest with a VC from the onset, you’ll be far more likely to build a successful partnership with them in the future.
Don’t be afraid to admit if your moves aren’t always perfect…
Tell it like it is. Say what you could have done better in the past and what improvements need to be carried out on your product/organisation in the future. Let them know that you’re working on getting it right.
Check out the other dancers on the floor
Talk to the companies in the VC’s portfolio to find out how the VC works with the companies and what they offer in both good and bad times.
Choose your dance partner wisely -you don’t want to be treading on each other’s toes!
You and your chosen VC will be together for a long time, so make sure that the VC is a good fit for your company and your styles match…
It’s negotiation time, understand the rules before getting on the dancefloor
Term Sheet provisions can be complicated, ask the VC to explain the terms you don’t fully understand and the philosophy behind them, this will help create a team atmosphere.
Find a qualified teacher to guide you, but don’t forget, you’re the one leading the dance
Do hire a lawyer experienced in VC financing to give you professional input and support during the Term Sheet drafting process. But don’t forget, you’re the one entering into a relationship with the VC so it’s up to you to lead the dance!
Focus on your performance and not on the judging
Valuation often gets disproportionate focus, but in reality, the figures don’t usually carry that much weight in the long run. Concentrate on performance and remember that it’s a growth industry and it’s always easier to grow from a lower rather than a higher valuation.
Understand that you will always have a leading role
Don’t spend too much time worrying over and negotiating clauses such as Bad Leaver or Forced Exit. They are more indications of what could be, rather than what will happen. For example, in real life no M&A deal can actually take place without the founder agreeing to it.
Don’t be afraid of letting go (just a little bit, not too much!)
Negotiate the best dilution terms with VCs and calculate how much you could be diluted in future rounds. VCs will normally take around 25% of your capital in a Seed round. Be wary of those that ask for much more as this could affect your ability to raise future rounds.
Looks like you have the steps mastered and you’re ready to hit the dancefloor! 🙂
Good luck with your VC discussions and negotiations and stay tuned for more of our top startup tips!