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• 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.

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• Case | HBS Case Collection | 2012 (Revised from original 2008 version)

  Negotiating Equity Splits at UpDown

  Noam Wasserman and Deepak Malhotra

  Michael Reich is having severe doubts about how he split the equity with his co-founders two months ago, when they completed a one-page "November Agreement." Since then, Michael has found an angel investor and has worked non-stop on the business, while one co-founder was off enjoying the winter break with his family and the other worked on lucrative consulting contracts for other companies. Michael has just sent his co-founders a proposal that would re-allocate the equity within their founding team, and all three founders are getting ready to reopen a negotiation they thought had been finalized.

  Keywords: Business Startups; Entrepreneurship; Capital; Venture Capital; Equity; Compensation and Benefits; Negotiation; Partners and Partnerships;

  Citation:

  Wasserman, Noam, and Deepak Malhotra. "Negotiating Equity Splits at UpDown." Harvard Business School Case 809-020, November 2012. (Revised from original July 2008 version.)

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• Supplement | HBS Case Collection | 2012 (Revised from original 2008 version)

  UpDown: Confidential Instructions for GEORG

  Noam Wasserman and Deepak Malhotra

  Michael Reich is having severe doubts about how he split the equity with his co-founders two months ago, when they completed a one-page "November Agreement." Since then, Michael has found an angel investor and has worked non-stop on the business, while one co-founder was off enjoying the winter break with his family and the other worked on lucrative consulting contracts for other companies. Michael has just sent his co-founders a proposal that would re-allocate the equity within their founding team, and all three founders are getting ready to reopen a negotiation they thought had been finalized.

  Keywords: Negotiation Participants; Agreements and Arrangements; Business Startups; Ownership Stake;

  Citation:

  Wasserman, Noam, and Deepak Malhotra. "UpDown: Confidential Instructions for GEORG." Harvard Business School Supplement 809-022, November 2012. (Revised from original July 2008 version.)

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