More from these Authors

• Article | Harvard Business Review | May 2013

  How to Negotiate with Vcs

  Deepak Malhotra

  VC-entrepreneur partnership agreements often contain flaws that become highly damaging as the parties come up against issues of power, trust, and much more. Yet many of the flaws are systematic and predictable-and hence preventable. The author, a longtime consultant to the VC industry, outlines four recommendations for entrepreneurs sitting down at the table with prospective funders. Understand your leverage. Your leverage is not only a function of your alternatives; it has a lot to do with the VC's as well. Seek to understand them, and be prepared to educate the VC about why his exercising too much power could hurt both parties in the long term. Maximize trust. Beneath all the financial projections, the VC negotiation is a process in which people are deciding whom they want to associate with for years to come. If the VC is vulnerable, use the opportunity to build trust rather than to take advantage. Focus on value-not just valuation. Nonfinancial considerations such as control are also important. Strive for understanding. Seemingly abstruse provisions can be highly consequential. And bear in mind that the choices a VC makes when negotiating can contain important clues about her assessments and expectations. Above all, when you're negotiating with a VC, think not only about what will look good in a press release today but also about what will help you create and capture value over the long run. INSETS: Idea in Brief;Lessons for Dealing with VCs.

  Citation:

  Malhotra, Deepak. "How to Negotiate with Vcs." Harvard Business Review 91, no. 5 (May 2013): 84–90.

  CiteView DetailsPurchase

  Related

• Case | HBS Case Collection | 2013

  Grupo RBS (A)

  John A. Davis and Courtney Collette

  Citation:

  Davis, John A., and Courtney Collette. "Grupo RBS (A)." Harvard Business School Case 813-164, April 2013.

  CiteView Details

  Related

• Case | HBS Case Collection | 2013

  Catherine Gomez and Dentalite

  John Davis and Shirley M. Spence

  Citation:

  Davis, John, and Shirley M. Spence. "Catherine Gomez and Dentalite." Harvard Business School Case 813-165, February 2013.

  CiteView Details

  Related