Monday, June 16, 2008

Negotiating the Terms Sheet – Principles Unite, Numbers Divide

During the ACA Summit, Robert Robinson of the Hawaii Angels offered the following advice.

There are three elements to understand in any negotiation:

Commitment – what have the parties agreed to?

Verification – how will we know that everyone fulfill their commitment?

Enforcement – what happens if a party does not fulfill his commitment?

Areas to negotiate include:

--Terms Sheet
--Portfolio governance
--Follow-on financing

During the presentation he brought up a key point of negotiation when he stated,
“Principles unite, numbers divide.” As soon as someone starts using numbers conflicts start to arise. At some point in the negotiation numbers must be used, but building a common base first goes a long ways in helping navigating through the possible numbers later.

The negotiation process itself is important. In this blog post a first-time CEO gives his experience in negotiating with a VC but also applies to angels as well.

Knowing the terms and what they mean is critical to the negotiation process. I’ve sat across the negotiation table with entrepreneurs who from time to time lean over to their attorney and ask, “What does that term mean?”

To that end, we’ve taken steps to provide more training to entrepreneurs in the form of special events like the Central Texas Entrepreneur Funding Symposium and Mock Terms Sheet practices sponsored by Andrews Kurth. For a tutorial review of Terms Sheet terms, check out this site.

Best regards,
Hall T.

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