A naukri.com initiative
Medium
2w
107
Image Credit: Medium
Crossing the River — Navigating the Complexities of Startup-VC Dealmaking
- Structuring an investment round is a high-stakes endeavor where clarity, trust, and alignment can make or break a deal.
- VCs often bring valuable experience and networks to a startup, and founders benefit from this strategic input. However, too much oversight can hinder the founder’s agility and creativity.
- Valuation is often one of the most contentious parts of a funding negotiation. Founders typically want to maximize the company’s valuation, while VCs aim to enter at the lowest possible valuation.
- Founders should set realistic valuations and back them up with data that reflects market conditions, current & past business performance, revenue potential, and comparable companies.
- Dilution, the reduction in ownership percentage due to issuing new shares, can erode a founder’s control over the company. Founders can negotiate protective provisions to retain control even as their ownership stake decreases.
- Term sheets are the stepping stone of formalizing investment interest, and they set the stage for the legal agreements that follow. Common terms include the board structure, liquidation preferences, and anti-dilution clauses.
- VCs should explain why certain terms standard practice for risk management are rather than an indication of mistrust. Founders should seek legal counsel to thoroughly understand every clause.
- Both founders and VCs must carefully navigate obstacles and find alignment despite their differing perspectives. By approaching this partnership with transparency, mutual respect, startups and VCs can build a relationship that ensures successful funding, growth, innovation, and eventual success.
- The journey of structuring an investment round is similar to crossing a river. After all, the best deals are those where both parties reach the other side of the river stronger and ready to face the next challenge together.
Read Full Article
6 Likes
For uninterrupted reading, download the app