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October 12, 2010

The Secret to Negotiating with Venture Capitalists

Want venture capital? Click here to watch this free presentation.

The #1 secret to negotiating with venture capitalists is to create a competitive market for your deal.

Competition is the easiest way to avoid some of the more niggling details of negotiating; uses the momentum of multiple VCs against each other; and does not harm any VC. This throws the odds more in your favor.

Here are 5 tips to lock in an atmosphere of competition among VCs:

1. When sending out teaser emails, do them all at once. Teaser emails pique the interest of VCs such that they will grant you meetings to deliver your slide presentation. In your teaser email, allude to the fact that many VCs are being given the opportunity to invest in your company at the same time. This creates a competitive investment market for your company up-front.

2. Also in your teaser email, create a sense of urgency. Hint at a deadline for their response, phrased like “We are looking to close this funding round by [month, date].” This shows VCs you are going through with the funding with or without them, and locks in the sense of urgency.

3. Give as many slide presentations as possible within the shortest amount of time possible. You may find yourself delivering five presentations within a single week.

4. Try to receive as many terms sheets as possible around the same date. Most term sheets have “no-shop” clauses barring you from offering a deal to other VCs for a set period. Most firms usually give you a week to sign a term sheet. If you hold multiple term sheets, you can choose the best one.

5. Buy more time whenever possible. One way to do this is to explicitly ask the prospective VC, “What diligence remains once we sign the term sheet? Which items can we complete before we sign the term sheet?” This could give you the extra week or two you need to secure more term sheets and thus increase competition.

Want venture capital? Click here to watch this free presentation.

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