Securing funds is stressful Make an effort, but it doesn’t have to be. We recently spoke with three VCs to find out the best way to start an investment network from scratch and negotiate the first termsheet.
Earlier this week, we covered the first part of a conversation with James Norman of Black Operator Ventures, Mandela Schumacher-Hodge Dixon of AllRaise, and Kevin Liu of Techstars and Uncharted Ventures.
Part 2 will be more specific on what investors should look for in a term sheet and the red flags to look out for.
(Editor’s Note: This interview has been lightly edited for length and clarity.)
Why should I know what the term sheet is about before I can look at the term sheet?
Mandela Schumacher-Hodge Dixon: No more back-and-forth waiting to get a term sheet. The term sheet should reflect what has already been agreed verbally, including the evaluation. Don’t wait until you have a legal agreement in your inbox before you start replying. Because it’s really annoying and it starts to affect how they feel about you.
I’ve even seen investors withdraw their term sheets. No one is bulletproof, but we really want to be as bulletproof as possible at all this stage. This requires preparation and clear communication.
James Norman: When you plan the whole fundraising process and lean into it and start to understand what the market is thinking, you want to get the end result in terms of what you want to accept. you may have to surrender, [that bottom line] And there’s a reason for that.
VCs are looking to invest in leaders, so they know there’s a power dynamic here.how to manage it and move things forward [impacts] How they think about how to do other things like hiring employees or getting customers.
Which mechanism is the best to use first?
Norman: Once you have your term sheet, the game really begins.
Regarding terms and conditions, you need to make sure you have a level equivalent agreement with the company. We don’t want angel investors to try to provide Series A Priority Documents or anything of that nature.
If you’re a pre-seed or seed-stage startup, 99% of the time you’ll want to use SAFE, Y Combinator’s Simple Contract for Future Equity invented in 2013. It contains all the standard languages you need. no one can argue with that. [If they do]something like “talk to Y Combinator about that”.
