44. Negotiating a Term Sheet (Jason Heltzer)

The Full Ratchet Podcast on iTunesNick Moran Angel List

Jason Heltzer of Origin Ventures joins Nick to cover Negotiating a Term Sheet. We will address questions including:

  • Heltzer Term Sheet NegotiationCan you first talk about why you chose to write about negotiation?
  • One of the first things to understand is whether the negotiation is asymmetric or not. What does this mean and why is a negotiation foregone if the leverage is imbalanced?
  • Before we get into all the strategies and tactics for negotiating, can you first highlight the top 3-5 areas that are most often negotiated on a term sheet?
  • What are some of the items that are typically not negotiated but should be a part of the discussion?
  • If valuation is the key element that the entrepreneur is focused on, what other elements do you negotiate on to counterbalance a valuation that may be above-market?
  • You’ve highlighted the characteristics of strong negotiators before. Do you mind touching on a few of the key items and give an example of a well-executed negotiation?
  • You’ve also called out the mistakes made by lousy negotiators. What are the most common pitfalls you’ve seen?
  • Some, like Fred Wilson and Jerry Neumann have talked about how they don’t really negotiate. What do you think VCs mean when they say they do not negotiate?
  • Any other suggestions for investors and/or entrepreneurs on how to better negotiate

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Key Takeaways:


1- Critical Items to Negotiate in a Term Sheet

The Top items most often negotiated on a Term Sheet:
-Founder Vesting
-Control Provisions

Items that should be included in every negotiation but in some cases are not:
-ROFR, Right of First Refusal
-Liquidation Preference & Structure of the Security
-Options Pools at pre or post
-Anti Dilution Provisions

2- Negotiation Pitfalls

-People that are position oriented vs principle oriented
-Try to push from a position of power instead of articulating the value that they bring
-Stuck on one detail, one aspect of the negotiation so much that they lose sight of the ultimate goal
-They talk more than they listen
-They try to sell so much that they lose credibility
-Focused too much on the vanity terms of the term sheet. Just want to broadcast the high valuation that they negotiated.
-Using agents to negotiated on their behalf instead of negotiating principle to principle
-Taking too long. Getting hung up on certain items and not knowing when to push for a close. Jason cited how this may have been an issue in the past, but after experience he has a better sense of when to move faster toward a close and when not to.

3- Characteristics of Great Negotiators

Total Value: Sophisticated Investors & Entrepreneurs look at value holistically. It’s not about one term, it’s about the cumulative value of a range of important terms
Great listeners: They don’t just understand their own goals but seek to understand the goals of the person on the other side of the table.
Awareness: Going in, they understand the outlook of each side. Justin mentioned how in venture, entrepreneurs are often the optimist while the investors will trade some upside (ie. valuation) in order to protect the downside (ie. liquidation preference).
Practiced/Experienced: This is a skill to be developed, so the more experience one has, the better negotiator they will become.
Creative, Win-Win focused: Look for a partnership and the opportunity to create tremendous value on both sides. Jason mentioned the story about the well-respected fund that was negotiating w/ an entrepreneur and the founder asked why he should take their terms b/c they were offering a lower valuation and the VC replied by saying “we pay the lowest, but our founders are the richest.”


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