A founder wants to change financial terms last minute. How will you navigate this negotiation challenge?

Before you jump to conclusions. ASK WHY. Without knowing the causes, one cannot properly evaluate the path forward. There are many reasons why one might change terms. In some cases, the terms are BETTER for investors. One investor might suggest that to close the round faster, the founders/CEOs could contact investors that had an interest and offer better terms - I suggested that and it worked. Then ALL investors in the same round got the same terms. When the terms are WORSE for investors, it might be a new lead that wants to take more or a sudden change in circumstances. My commitments are conditional to the terms always, so I can back off if needed. I don't invest if the same rounds has different terms.

Assess Impact: Before reacting to the founder's request to change financial terms, take a moment to understand the implications. Evaluate how these changes would affect the deal's structure, your return on investment, and the company's future financial health. It's crucial to consider whether the new terms are justifiable or if they put your investment at undue risk. This assessment will guide your response and help you approach the negotiation table with a clear perspective on what alterations you can accommodate and which are deal-breakers. By carefully analyzing the impact, you’ll be better positioned to make informed decisions and maintain a strong negotiating position.

Before responding to a founder’s request to change financial terms, take a moment to assess the impact. If the change doesn’t significantly affect the deal, it might not be worth negotiating—sometimes granting a reasonable request can build trust and set a positive tone for the relationship. If the request is more complex, consider including additional protections, such as a staged investment approach or extra anti-dilution clauses

It's paramount to be data-driven, looking beyond immediate returns and considering how these changes could influence the company's growth trajectory and long-term viability. One example from my career underscores this balance. While advising a Series B SaaS company during an economic downturn, I successfully navigated a request to modify terms by securing stronger anti-dilution provisions in exchange for a slightly lower valuation. This strategic move preserved the investor's ownership percentage and boosted the potential ROI by 12% over the original terms. It's this ability to be both adaptable and analytical that drives successful VC investment.

To navigate last-minute changes in financial terms, stay calm and evaluate the impact on the overall deal. Engage in open dialogue with the founder to understand their reasons and assess if the changes are justified. Use data and clear reasoning to negotiate adjustments that align with the original agreement while protecting your interests. Aim for a compromise that maintains a fair balance for both parties.

Open Dialogue: Once you've assessed the impact, the next step is to engage in an open dialogue with the founder. Approach the conversation with a mindset that seeks to understand their reasoning behind the proposed changes. Ask probing questions and listen actively. This is not just about crunching numbers; it's about understanding motivations and building trust. Remember, your response should demonstrate flexibility without compromising your investment standards. A collaborative dialogue can often lead to a mutually beneficial middle ground. By maintaining open communication, you can foster a sense of partnership and work towards a solution that satisfies both parties.

When a founder wants to change financial terms last minute, start by understanding their reasoning. Open a dialogue, ask questions, and listen. This builds trust and shows you care about more than just numbers. Explain your rationale for agreeing or disagreeing, and sometimes, showing how your terms can actually benefit them more can help. I’ve seen this in licensing deals. By considering the deal from their perspective, you can often find a middle ground that works for both sides, keeping the relationship strong and the deal on track. Remember, you'll be working with these people for years if the deal goes through!

Beyond negotiation, this dialogue uncovers deeper insights: the founder's vision, risk tolerance, and problem-solving skills. This can be more valuable than any spreadsheet. Once, during a term sheet negotiation, I realized a founder's proposed changes stemmed from a market opportunity they hadn't fully conveyed. We adapted the deal, securing additional upside for our fund while also enabling them to capitalize on that opportunity, which ultimately boosted the company's valuation by 30% within a year. Open communication transforms negotiation into discovery.

All about fairness and fair dealing. Don't get stuck in something you no longer feel good about. But be flexible if its good for the company and your investment. I'm just super transparent about all this. More money on the table - think about how best to make it work. Ultimately though all about reputation and relationship. And the game is to multiply capital, by helping the company go huge and navigate the idea and failure maze.

Leverage Terms: In any negotiation, it's important to know your leverage points. Review the initial agreement and identify areas where you have flexibility and where you can push back. Use these leverage points to steer the conversation towards a compromise that aligns with your investment criteria. It's about finding a balance that satisfies the founder's needs while protecting your interests. Leverage is not about exerting power but about guiding the negotiation to a successful conclusion for both parties. By carefully using your leverage, you can navigate the discussion toward a mutually beneficial agreement without compromising on essential terms.

Understanding your leverage is crucial, but the true power lies in recognizing the founder's leverage too. This fosters a win-win mindset, essential for a long-term partnership. During a funding round for a promising biotech startup, we initially pushed back on their request for a higher valuation. However, after recognizing their unique IP's potential market disruption, we shifted our focus to structuring a deal with milestone-based earn-outs, safeguarding our investment while rewarding their future success. This led to a 40% increase in our initial ROI, showcasing how a partnership-focused approach can unlock hidden value.

Find a win-win situation and always put a performance incentive plan for founder and the management team to be able to achieve the desired outcome.

If the proposed changes are too significant, it’s crucial to make sure founders know you’re on their team and want the business to succeed. Sometimes, it’s worth giving a little on the front end to start the relationship on a positive note—later, when you need something, they may remember the goodwill you built early on. Suggest different financial structures or terms that could meet both your needs, like adjusting equity stakes, vesting schedules, payment timelines, staged investments, or anti-dilution protections.

While exploring alternatives showcases flexibility, the key is framing them as a path to mutual success rather than a compromise. When faced with founder requests that strained our fund's model, I'd often propose creative solutions tailored to their needs, such as offering convertible notes with warrants or staged investments tied to performance milestones. This approach not only protected our position but also incentivized the founders to hit their targets faster, leading to one company exceeding their initial revenue projections by 25% within the first year. It's about turning a potential impasse into a shared win.

Maintain Relationships: Throughout the negotiation process, prioritize maintaining a positive relationship with the founder. The world of venture capital is built on long-term partnerships, and today's negotiation challenge could lead to tomorrow's opportunity. Communicate with respect and professionalism, even when disagreements arise. By fostering a positive relationship, you ensure that, regardless of the outcome, your reputation as a fair and strategic investor remains intact. This approach not only helps to resolve the current issue but also builds trust, paving the way for future collaborations and mutual success.

Maintaining a positive relationship with the founder is key, not just for the current deal, but for future opportunities. A strong relationship can lead to referrals, co-investments, and insights into emerging market trends. As a VC, fostering these relationships is as important as making sound investments. Once, when a deal fell through due to unforeseen market shifts, my continued support for the founder led to their next venture seeking my investment first. This not only resulted in a successful exit with a 3x return but also solidified my reputation as a VC who supports founders through thick and thin.

Maintaining relationships is important, but not at the expense of your business. A commercial relationship is a two way street, you deliver, customer pays. Over-prioritisation of the relationship can mean that one party takes the other for granted and it doesn't end well, so be careful. The best relationships are maintained through the effective management of expectations, the setting of commercial boundaries, delivering a quality service, and most importantly, respect.

If a founder wants to change the financial terms at the last minute, prioritize keeping the relationship strong. Approach the conversation with empathy and openness. Explain your position clearly but listen to their reasons for the change. Try to find a compromise that works for both sides. By handling the situation respectfully, you can address the immediate issue while preserving a positive working relationship for the future.

Politely but firmly communicate what you can and cannot accommodate. While you should be open to discussion, make it clear where your limits are to avoid compromising your key objectives. Balancing this with maintaining a positive relationship involves being transparent about your constraints while working collaboratively to find a solution that respects both parties’ needs. This approach helps manage expectations and keeps the negotiation constructive.