Termsheet Shenanigans for Beginners

Rummble is once again engaged in discussions with new investors; the meetings can be fun, interesting, engaging … or they can be stressful, frustrating and painful.

A simple rule can be applied here- If it’s the latter, walk away. That is not to say that meetings with your potential new bed partners will always be easy or not challenging. The best thing to be gained from any investment meeting is the potential to improve your business – regardless of whether that investor invests, or not.

Most angel investors and certainly VCs, see hundreds if not thousands of companies and startups. They have a unique insight and view on your business which should not be ignored.

Some VCs I have met with in the past have demonstrated a surprising lack of understanding of the world (in my case, internet and mobile). It is important that your investors have a clear vision of the future of their own. How else can they fairly judge your take on the world? Moreover, you end up pitching an entire industry sector, rather than your product and your team. Even if they do invest but they dont have a beleif set aligned to your own, it will cause major problems further down the line. You are choosing them too; consider your contact essentially joining your team – if you wouldn’t want to work with them in your team, why are you going to attempt to work with them on your board? Don’t.

In general you need to feel the meetings are “right”, that you see eye to eye at least on the basic: your product and the future of the market.

Ultimately, they are of course, looking to maximize their profits and that of their fund; so sometimes taking a dogmatic position for something you believe is right (be it price, your people or your product) is required – or at worst, some serious brinkmanship.

With haggling and termsheets in mind, the often excellent blog at Found and Read has a great Termsheet glossary outlining the most common terms. Also, check out www.thefunded.com which now has termsheet details uploaded too; its an excellent resource about VCs.

Don’t feel bad now about not knowing these terms as well as the VC – they do it every day, you dont – but do feel bad if you dont make some effort to gen up before discussions begin.

If you don’t know, just say so – you’ll look more foolish pretending to know but not, than simply saying “Liquidation multiple, remind me which one that is?”. After all, if you’re not a seasoned deal-sheet negotiator, they’re going to know that already.

So, it has been said 100 times before, but follow your gut. If you’re going to be a succesful entrepreneur, your gut is probably right.

(update: Found and Read has recently joined forces with Gigaom)

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