How do you negotiate term sheets and deal structures with venture capitalists?

A really good mechanism to structure your thinking is building your investment deck. Building an investment deck is firstly for you as a founder to structure your thoughts and then to communicate and test with investors. In that deck you could have a slide on the problem you are solving, your solution, your customer and market - and your great team. Your value proposition is how your business adds value to your customers and what differentiate you from your competition. An important thing to remember is that only with being close to your customers and validating your hypothesis you could iterate your value prop. If you expect to nail it from your head to the slide you will be wrong.

"Negotiate the process before you can negotiate the deal." Even before you can think about your value proposition, it is important to put together a start and end date along with pipeline tracker ideally using a CRM. Fundraising is a like a sales process and you should be in control of the process. Without that you leave closing to chance. Expert founders therefore set up a target closing date and communicate proactively with everyone that they interact with.

To win a negotiation with investors it is key to gather as much information as possible about their decision-making process and tailor your approach to them accordingly. Three items are fundamental for investors to evaluate: 1. Return on investment. 2. The team in place. 3. Risk management. Investors want a return. Your plan and financial estimates must clearly explain how you will address market potential, growth and profitability. Strong teams attract investors. You'll need to know your team's strengths and limitations and explain them to investors. Risk management is also crucial to investors. Identify which risk drivers could impact your company strategy and be able to explain how to counteract those risks.

Know what they said yes to and what they refused in the past ! Homework is key!! If you know what they like your chances are greatly increased. Know their people’s preference as much as you can.

Tell them it’s a first run Pitch Deck. I’d you’ve done your homework it should hit the target. If not, ask for their advice and guidance on improvements! Improve and re-pitch.

Make sure you spend time getting your story pitch right. ?You need three type of pitches. A conceptual pitch, an elevator pitch, and a detailed pitch deck A high-concept pitch distills a startup’s vision into a single sentence. Something memorable, written with an investor audience in mind and appealing to their fear and greed, An elevator pitch is equal to a high concept pitch plus social proof. Pitch deck is a detailed document that highlights the opportunity, shows why now the timing is right, what is unique about you that will help you win, other social proof to show that your story is grounded in reality, and other elements that convinces that you are the right person to build this.

Typically the best way to negotiate is to have multiple term sheets land at the same time. That way you can compare and contrast and use the different term sheets as leverage to get what you want. The best way to do that is to run a disciplined process so all of the investors are finished the work they need to do in order to provide a term sheet at the same time. In your first meetings with firms try and understand their process and then work backwards to make a plan that ends up with you getting multiple offers at around the same time. Otherwise, your negotiations might fall flat as the other party knows you have no better alternatives

Ask them what are their limits. Know the boundaries of a possible deal. After asking what they want, ask if you can take 24 hours to consider and structure a proposed win/win.

Don't forget about preparations before negotiations. Prepare your BATNA and scenarios of what will happen if you don't secure the next round of funding at any given time. The desperate founder can be seen and felt.

This should be done by someone other than the promoter. You don’t want to get into tense negotiations on sticky terms. That could damage the working relationships. Get someone else (like a lawyer) to complete.

When you get the funding don’t go to Vegas, so to speak :) You have fuelled your tanks, now hit the gas and get results. That’s why they invested in you !!