Startups are getting Musked Elon Musk has signed binding documents to buy Twitter. If he cannot arrange financing, he must pay a $1B breakup fee. Otherwise he must complete the deal. Tech stocks have crashed since he made that agreement so getting out for just $1B would be a bargain, but Twitter is going to sue him to complete the deal. The final result will probably be negotiation followed by a completed transaction at a lower price. If an investor signed legally binding documents to invest in your company two or three months ago but he has not yet given you the money, he may be feeling a lot like Elon Musk right now and looking for a way out. His options: ? Bartleby it - "I would prefer not to." ? Find a legal excuse - hire a lawyer and look for a problem in the documents ? Claim inability to fulfill the terms - "I invested all my money in leveraged financial products based on Lazy Orangutang Rowboat Club NFTs and now I have no money." In all of these cases he probably cannot win long term if you sue him (unless he is really bankrupt - you cannot get blood from a stone) but he can delay for long enough to cause permanent damage to your company. So you need to use a combination of negotiation and pressure, just like Twitter. You will threaten lawyers, your existing investors may discuss reputational issues with him, and if you know him personally you may beg. Eventually there will probably be some kind of agreement. Even if investors have already wired the money, they may come to the company and ask to change the terms. We know some companies are agreeing. If a company dramatically changes its business plan a few days after receiving investment, investors start muttering about lawyers. Negotiating new terms and leaving everyone equally unhappy but without huge legal bills can be the best outcome. Investors who have only signed term sheets are in the best situation. Virtually every term sheet is non-binding. An investor can almost always walk away with little or no legal consequences. There are reputational consequences - an investor who does this frequently will not be welcome in crowded rounds - but there are reputational issues with LPs when a fund invests in a company at two or three times its current value or with your family if you are investing your own or your family's money. #venturecapital #startups? #angelinvesting? #emergingmarkets #emergingmarketsventurecapital #emergingmarketsangelinvesting #funding #raise #recession #layoffs #winterHasCome #crash #downturn #lawyers #lawsuits #suing Reflect Ventures helps accredited investors build diversified emerging markets startup portfolios with small or medium sized tickets. If you want to discuss investing, please email [email protected]. Please subscribe to our newsletter, https://lnkd.in/g9NFxnmJ.? https://lnkd.in/gRKTHuPa
