As a venture capital flows continue to fluctuate, the founders have to double down on the terms they negotiate. While it may be tempting to skip certain terms in order to close a deal, founders should remember that almost everything in a deal is negotiable.
Many entrepreneurs tend to focus only on the valuation of the company during negotiations, but often other points in the contract can be much more important. The problem is that founders in the early stages of their business are often reluctant to hire lawyers because of the costs involved, so they don’t have the legal knowledge or experience to negotiate the best possible deal.
But when you’re dealing with corporate venture capital (CVC), where firms have experienced, dedicated legal teams, founders must enter into negotiations with an understanding of the legal dynamics. This will allow them to be creative in their requests and implement more effective conditions for both parties.
Based on my legal experience as the head of Wayra X, Telefónica’s investment vehicle, and conversations with the founders at the negotiating table, I can advise on how to work with CVC.
CVCs also understand startup negotiations
Especially at this point, you should feel that you can still challenge investors’ terms and express your preferences.
It may seem like you’re running into a Goliath when trying to negotiate with CVC, but the size and experience of their legal teams doesn’t give them an automatic advantage. Yes, CVCs are more accustomed to high-level M&A and contract preparation, but they should be able to change their mindset when working with startups.
This means being able to work effectively with a small team, write contracts in plain language, and clearly break down requirements before anything is signed.
CVCs should also not run counter to the wider investment world; their size prevents them from working outside of standard processes. Thus, if they present terms that seem out of place in a traditional investor contract, the founders can definitely withdraw them. Similarly, if the CVC wants to tie the investment to a commercial transaction, you can opt out, especially if there is a potential conflict of interest.
Credit: techcrunch.com /