Investor Feedback
to Refine Story
IDEA
Planning/
Research
The
Story
Pinpoint
Ideal Match
Meet, Date, Try
to Make it Work,
Break Up
Investor Referral to New
Investors
Refinement
Deal
Results
Funding
Micromanage
Closing
Manage
Negotiation
© 2010 Six Secrets (Fisher/Powell)
Negotiations: Key Parameters
Investors:
•Their goal is to give you everything you need,
not what you want, and keep the rest for
themselves
Entrepreneur:
•Your goal is to give the investors everything
they need, not what they want, and keep the
rest for yourself.
Economics
Valuation:
•Initial valuation exerts unusual influence over the
entrepreneurs economic return
•Valuation negotiation begins with budget forecast:
examples
•Investor says:
•You say:
Liquidation rights
Investor says:
You say:
Compromise
Attorneys fees / transaction fees
Investor says:
You say:
Compromise
Control
Say-so in major decisions
•Major expenditures
•Budget approval
•Approval rights on sale of company / IPO
•Approval rights on liquidation
•Compensation of senior managers
•Board representation
•Board make-up
Control
Your Employment Contract
•Compensation: salary and bonus
•Length of contract
•Termination for cause
•Termination without cause
•Non-compete
Negotiation Do’s and Don’ts
•Get all the issues on the table first; don’t negotiate piece-meal:
“Here’s the things that are important to me” “What are the things
that are important to you?”
•You control the process by issuing the draft term sheet first
•You address, in the negotiation, the thing they need, not the
thing they’re asking for
•You ask for something back, in return for anything significant you
give up
•How to disagree: added bonus: their attorney
•If multi-party investment, pick a lead investor
•Stay positive, and keep them positive
Investor Feedback
to Refine Story
IDEA
Planning/
Research
The
Story
Pinpoint
Ideal Match
Meet, Date, Try
to Make it Work,
Break Up
Investor Referral to New
Investors
Refinement
Deal
Results
Funding
Micromanage
Closing
Manage
Negotiation
© 2010 Six Secrets (Fisher/Powell)
The Investor Universe
•Individuals
•Angel groups
•Venture funds
•Strategic investors
•Hedge funds
•Mezzanine funds
•Private Equity
•Banks
•Public Markets
Funding: Who is your best match?
VENTURE
Stage
Early, middle, late
Specialties
Tech, retail, online games, real estate, supply chain
Driver expertise
Direct marketing, business development, deep technology, mining data
Seasonality
Where are they in current fund
Other criteria
Circle of influence, champion
Example Funding Series
Company A – Persistent Pursuit
Financing
Series A
Series B
Series C
Series D
Valuation
Date
Dilution
Raise
Pre $
Post $
1998
27%
$1,500,000
$4,076,460
$5,576,460
1999
48%
$15,000,000
$16,250,000
$31,250,000
2003
41%
$11,000,000
$15,520,816
$26,520816
2004
69%
$30,000,000
$13,374,307
$43,374,307
IRR
1998
1999
2000
2001
2002
2003
2004
A Investors
-5%
($1,500)
$0
$0
$0
$0
$0
$1,074
Common
B Investors
-24%
$0
$0
$0
$3,713
Common
C Investors
-51%
($11,000)
$5,384
($15,000) $0
Series D
Founders
$2,919
Investor Feedback
to Refine Story
IDEA
Planning/
Research
The
Story
Pinpoint
Ideal Match
Meet, Date, Try
to Make it Work,
Break Up
Investor Referral to New
Investors
Refinement
Deal
Results
Funding
Micromanage
Closing
Manage
Negotiation
© 2010 Six Secrets (Fisher/Powell)
© 2010 Six Secrets (Fisher/Powell)
© 2010 Six Secrets (Fisher/Powell)
© 2010 Six Secrets (Fisher/Powell)
© 2010 Six Secrets (Fisher/Powell)
Ease of Understanding
SOLUTION
Passion of
Entrepreneur
Proof of Claim
RISKS: Known and
Unknown
Confidence in Solution
CREDIBILITY: Exec
Team Make-up /
Expertise
Persuasiveness of Problem
Audience’s Personal
Experience of
Problem
Quantified Size of
Problem and
Potential Market
Difficult to Solve
(Barriers to Entry /
IP)
© 2010 Six Secrets (Fisher/Powell)
1500 + if no BPS
Secret 1 & 2
Secret 3
Secret 4 & 5
Secret 6
500 (x) Bullet Proof Speech
50 Mild Interest
1 Pager
10 Serious
1 Writes a Check
BPS 500 (x) 3 minutes = 25 hours
(1.5 (x) week)
3 50 (x) 2 hours = 100 hours
(6 hours (x) week)
$$ FUNDED!!
4 & 5 10 (x) 10 hours = 100 hours
(6 hours (x) week)
6 1 (x) 40 hours = 40 hours
(1.5 (x) week)
© 2010 Six Secrets (Fisher/Powell)
© 2010 Six Secrets (Fisher/Powell)