Brett J. Fox: How Do You Choose Between Competing Term Sheets?

Brett J. Fox

How Do You Choose Between Competing Term Sheets?
By Brett Fox
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Congratulations on getting two competing term sheets. You’re one of the few entrepreneurs that is in such an enviable position.

Now you get to choose the best VC for your deal, and you have a forcing function to get the deal done. Nice!
You are under no obligation to let the second VC know anything about the first term sheet you’ve received. It’s totally up to you.

Let’s say you want to work with the second VC. What should you tell the second VC about the first VC’s term sheet?

Nothing at first.

I would simply tell the second VC that you have received a term sheet from another investor. Then I would say that you need the term sheet from them by date X if they want to work with you.

The reason I like working this way is you never know what you’ll hear from the investor. You may get an incredible deal because they know there is competition for the deal.

The worst thing that happens is you don’t like the terms. Then…
Based on the term sheet you receive from the second investor, you can negotiate on the various terms you want improved.

Get your lawyer and your advisors to review the term sheet. Do it fast, so you can be respectful to all the parties involved.
Don’t just choose the deal that gives you the most percentage ownership.

Remember, the relationship with your investors is a long term relationship. And a bad relationship with your investors is the one relationship that is almost impossible for you to recover from.

Look at the fit between you and your investor. Hopefully you’ve already checked with other CEOs (past and present) that have worked with this investor.

You want to be sure that the investor is going to stick with you and support you when times get tough. That investor support is going to be worth a lot more than any extra ownership you get from a bad investor.

For more, read: What Are The Five Fatal Mistakes That Will Kill Your Business?
Do You Want To Grow Your Business?  Maybe I Can Help.  Click Here.

Picture: Depositphotos

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