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HOW TO NEGOTIATE WITH VCS
--------------------------
Deepak Malhotra
INTRODUCTION
VC–entrepreneur partnership agreements often contain
flaws that become highly damaging as the parties come
up against issues of power, trust, and much more.
Yet many of the flaws are systematic and predictable and
hence preventable.
There are four recommendations for entrepreneurs-
Understand your leverage, Maximize trust, Strive for
understanding and Focus on Value.
HOW TO
NEGOTIATE
WITH VCS ?
1. Understand Your
Leverage:
-dealmakers worry
about more than
figuring out who has
greater leverage and
.how best to use
whatever power they
have
-“running out of cash”
2. Maximize Trust:
-VCs put a premium on
trust
-the start of a very trusting
relationship or the end of
the dialogue
3. Focus on Value:
(Not Just Valuation)
-focusing on a single, top-line
number sometimes makes
sense
-exhibit the greatest disparity of
any type of deal between how
much people should focus on a
single factor and how much
they actually do focus on it.
4. Strive for
Understanding:
-pay close attention to
terms other than
valuation
UNDERSTAND YOUR
LEVERAGE
• VC negotiations as anywhere.
• dealmakers worry about more than figuring out who
has greater leverage and .how best to use whatever
power they have
• “running out of cash”
MAXIMIZE
TRUST
• lay out ambitious financial
targets
• VCs put a premium on
trust
• the start of a very trusting
relationship or the end of
the dialogue
• made commitments you
cannot keep.
FOCUS ON VALUE:
(NOT JUST VALUATION)
• focusing on a single, top-line number
sometimes makes sense
• exhibit the greatest disparity of any type
of deal between how much people
should focus on a single factor and how
much they actually do focus on it.
• exhibit the greatest disparity
STRIVE FOR UNDERSTANDING
• pay close attention to terms other than valuation
• share of the value that remains
• If a firm hits it big, participation gives the VC a huge
windfall
LESSONS FOR DEALING WITH
VCS:
• 1.VC attention and support are limited resources, and
you’ll be competing for them with other portfolio
companies.
• 2.Beware of entrepreneurial overconfidence.
• 3. Your leverage is not only a function of your
alternatives
• 4. Transparency is often less costly than you fear
5.You can build trust most easily when the other party is
vulnerable.
6. Play it straight.
7. Beware the allure of valuation.
8. Use your bargaining power wisely
9. Pay close attention to which terms the VC accentuates
in her demands
GROUP 5:
• NEHA B.K-20191IST0102
• NEHA S MADBHAVI-20191IST0103
• NELAKURTHI CHARAN-20191IST0104
• NITISH KURANA-20191IST0105
• P N SHARANYA-20191IST0106
• P S VARUN-20191IST0107
• PARVEZ MULLA-20191IST0108
• POORNACHANDRA S-20191IST0110

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How to Negotiate with VCs.pptx

  • 1. HOW TO NEGOTIATE WITH VCS -------------------------- Deepak Malhotra
  • 2. INTRODUCTION VC–entrepreneur partnership agreements often contain flaws that become highly damaging as the parties come up against issues of power, trust, and much more. Yet many of the flaws are systematic and predictable and hence preventable. There are four recommendations for entrepreneurs- Understand your leverage, Maximize trust, Strive for understanding and Focus on Value.
  • 3. HOW TO NEGOTIATE WITH VCS ? 1. Understand Your Leverage: -dealmakers worry about more than figuring out who has greater leverage and .how best to use whatever power they have -“running out of cash” 2. Maximize Trust: -VCs put a premium on trust -the start of a very trusting relationship or the end of the dialogue 3. Focus on Value: (Not Just Valuation) -focusing on a single, top-line number sometimes makes sense -exhibit the greatest disparity of any type of deal between how much people should focus on a single factor and how much they actually do focus on it. 4. Strive for Understanding: -pay close attention to terms other than valuation
  • 4. UNDERSTAND YOUR LEVERAGE • VC negotiations as anywhere. • dealmakers worry about more than figuring out who has greater leverage and .how best to use whatever power they have • “running out of cash”
  • 5. MAXIMIZE TRUST • lay out ambitious financial targets • VCs put a premium on trust • the start of a very trusting relationship or the end of the dialogue • made commitments you cannot keep.
  • 6. FOCUS ON VALUE: (NOT JUST VALUATION) • focusing on a single, top-line number sometimes makes sense • exhibit the greatest disparity of any type of deal between how much people should focus on a single factor and how much they actually do focus on it. • exhibit the greatest disparity
  • 7. STRIVE FOR UNDERSTANDING • pay close attention to terms other than valuation • share of the value that remains • If a firm hits it big, participation gives the VC a huge windfall
  • 8. LESSONS FOR DEALING WITH VCS: • 1.VC attention and support are limited resources, and you’ll be competing for them with other portfolio companies. • 2.Beware of entrepreneurial overconfidence. • 3. Your leverage is not only a function of your alternatives • 4. Transparency is often less costly than you fear
  • 9. 5.You can build trust most easily when the other party is vulnerable. 6. Play it straight. 7. Beware the allure of valuation. 8. Use your bargaining power wisely 9. Pay close attention to which terms the VC accentuates in her demands
  • 10. GROUP 5: • NEHA B.K-20191IST0102 • NEHA S MADBHAVI-20191IST0103 • NELAKURTHI CHARAN-20191IST0104 • NITISH KURANA-20191IST0105 • P N SHARANYA-20191IST0106 • P S VARUN-20191IST0107 • PARVEZ MULLA-20191IST0108 • POORNACHANDRA S-20191IST0110