Greg Michel

Be mindful of the fact that as the deal negotiation progresses, the balance of power progressively shifts towards the startup. This is because after a while, the sunk cost of pulling out of a deal becomes high so everyone at the firm will push to get it done, even if you hit bumps in the road. It's therefore a little risky to push sensitive negotiation topics all the way to the end. Plus, you also risk getting deal fatigue if the negotiation drags on, which will fray tempers and make you less objective. Get the tough points out of the way early so that you get smooth sailing later on when everyone gets tired and just wants that deal closed.

This is really key in my opinion, and where good investors can shine. Unexperienced founders will too often get bogged down in details and waste time and lawyer fees on them. The art here is to skillfully guide them to the important stuff and to close the information gap with them (or advise them to have their lawyers do it, assume they're good).

Knowing everything about the startup and the sector is just basic expectation. If you're not sure you shouldn't invest let alone waste founders' time. But let's say you've got this down. Where most of the difference is made in my opinion is the ability to relate to founders. In Europe we have a smattering of VCs who have never set foot in a startup. They're ex consultant, ex bankers, who have read all the books yet never experienced the grime of startup building. As a result, their empathy is low. The goal is to maximise the outcome for the VC firm, period. Don't get me wrong, VC is no charity. But the ability to know the specific pressure points of an entrepreneurs, how to address them in a calm yet efficient way will do absolute wonders.

Unfortunately, VC is rife with overinflated egos. We've been kicked out of a syndicate by a lead because we dared questioning one of the egregiously investor-friendly clauses they put in their term sheet. The whole rest of the syndicate was backing us but that was too much to take for that particular partner. I will never stop defending balanced term sheets, even if it comes at a price for us sometimes. If the company's promising, we should all make money from it with fair terms and not relying on pressuring founders or coinvestors.

This is a key part. I still see too many lead investors being cagey about who else is investing and not sharing their DD. It's just small-mind thinking. The more information there is in the syndicate, the more alignment their is and the better it is.

The board seats for lead investors are a pretty black and white thing. Expect each lead investor from seed onward to request a board seat. There will be little you can do to say no to this. Further than this, if you're happy to money from partner X at firm Y, you should know why, and therefore you should be happy having them on the board. If not, they're not the right investors for you! The real negotiation here will instead be who stays on and who goes to keep the board to a manageable and efficient size. This is a careful balancing act to not upset your existing investors while positioning your company for success.