Getting past the term sheet
Now most entrepreneurs don’t understand how to negotiate with investors. In fact unless they have had a previous success or can create a ton of venture competition, the entrepreneur should NEVER be negotiating a term sheet. There’s a simple reason why: professional investors are masters of structured finance. Structured finance implies structure. Entrepreneurs are unstructured people. Investors tend to have “standard” structures or term sheets. These structures in reality can often be negotiated - however they should never be negotiated by the entrepreneur because the entrepreneur will come off greedy and like an ass because they (we) don’t understand the structural details. This is where your lawyer comes in. No, I’m not talking about your roomates friends brother in law as a lawyer. If he’s your lawyer, unless he works at a venture related firm such as Wilson Sonsini, Fulbright etc… then you’re an idiot. A serious law firm is appreciated by venture capitalists and can get away with hard ball negotiation tactics. Your roomates friends brother in law may kill the deal trying the same tactics. You as the entrepreneur will likely shoot yourself in the foot even for trying to do it yourself because by default you don’t understand structure. If you did, you’d be an investor and not an entrepreneur. So go spend the $20,000 and get yourself a serious law firm or if your idea is really good, get the lawyer to take some equity instead of cash and then you really have a shark on your side.
