Friday, November 12, 2010

A Lesson in Control

DealBook: A Lesson in Control By STEVEN M. DAVIDOFF
November 10, 2010 New York Times

The Deal Professor examines the use of venture capital for a start-up, saying many entrepreneurs receive needed money, but lose control of their business

"A venture fund will negotiate a set of agreements with the founders at the time of its investment... Not only will the fund negotiate to ensure that an exit occurs, but the V.C. will insist that it be paid back before the founder.

"The key for entrepreneurs in deal negotiations is to make sure that when they do raise V.C. money, they have options. If they can get multiple term sheet offers from more than one venture capital firm, then they can negotiate to sell the smallest part of their company on the most lenient terms. If you only have one term sheet, you are not going to fare well.

"When the company is not performing to expectations, these legal rights negotiated at the beginning of the founder-V.C. relationship come into play."


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