Raising money for your company can be an exciting, challenging, and stressful time. There are always plenty of other businesses and ideas out there competing for scarce funds. When you find a venture capital fund willing to potentially invest in your company, you will probably feel like you’ve struck gold. However, receiving a proposed term sheet from a VC should be seen as the beginning of a process, not the end of one. If possible, it’s always best to have interest from more than one VC, to ensure that you receive the best deal possible and don’t get pressured into a bad deal. The terms of an investment in your company from an outsider do matter, and can make a big difference down the road.
Some VCs may try to pressure you into accepting their terms before you are able to shop around for a better deal. What should you do? Fellow blogger Mark Suster wrote a piece a few years ago on this topic, and I think it’s still relevant today. If you’re in the process of raising money from venture capitalists, I recommend that you read it. To sum up his post: don’t cave into pressure tactics.
Article Referenced: Beware of Gym Salesman VC
© 2011 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.