Negotiating Your First Term Sheet

Hi everyone Good morning good afternoon good late Morning Um so yeah as Alex said it's such an Important topic and we do cover so much Of you know the people that have gone on Trees their first term sheets and many More Um but uh you know raising a term sheet Is never easy and right now it's Probably about as hard as it gets so I'm So happy to have these guys on stage With me to talk through how you do it so James Mabel will start with you Um You know I guess just early thoughts About how you know at what point does a Person who's got an idea start talking To potential investors and you know Should they be talking to VCS Angel Investors how do you start that early Network Um so I think it's a pretty varied Um landscape on that like when you're a First time founder depending on what Networks you come from you know your Situation could be different right Um a lot some people are able to start With friends of family money people in The demographic I invest in is like Ultra atypical for that to be a thing But you want you can go after VCS and Some people will take some of the cold Outreach if it's cultivated in like a

A thoughtful way a meaningful way where It actually could be a connection but You know getting to Angel Investors Could be like an easier onset if you're Not already in like a network of getting To VCS with warm introductions but Um where you get your initial capital From you just want to get from the best Partners so I mean Angel Investors can Be a good place if you're really early On don't have a product you're trying to Get if you want to find someone who Believes in you but if you do have Something that's working and you're Trying to move something forward and you Really feel like you're you could scale This to be something very large it's Okay to find a BC partner you know for a Pre-seed someone like a precursor things Of that nature so I think like it all Depends on your situation and I would Say that it's all about Finding people that you love to work With you know Um and then just and then we'll get to The term sheet part but making sure that We're making the right partnership with The right terms right yeah cultivating That relationship yeah Um I Echo so much of what James said I I Just how many of you are Interested in raising Capital but have Not done it yet just raise your hand Proud how many of you have already

Raised capital from Venture capitalists Okay raise it high raise it high high Everyone look around at who these people Are these are some of your sources of Information on how it really works and It's free it's free and they're generous They're humble because they've walked This path that you're all trying to walk And I think it's so important that you Understand that some of the best Resources for this information are other Founders who've already been through the Battlefield the question was around when Or where I mean both like how do you Know just like the very beginning you Know you're trying to get coffee Meetings like who who are you trying to You know yes so success is planned Premeditated and on purpose full stop And if you want to be successful at Fundraising you have to understand it is A game and in order to win this game you Have to understand the rules of the game The culture the unwritten rules that you Won't read about in blog posts or see in Podcasts and so one of the things to get Really clear on for yourself is what are You building and are you truly Interested in making it VC backable Because when you make a VC backable You're signing up to go as big as fast As possible you need to be in line with The investors in the agreement that These investors made with their LPS on

The returns that they're going to have For the fund right there was an Agreement that happened before you ever Showed up to the pitch meeting you need To understand that you need to align With that agreement and so once you make That decision to opt into this game Really understanding which investors are For you and align to what you're Building the sector the stage the amount Even Partners you want to work with and I tell Founders all the time the Websites that investors put up believe Them there's something called an Investment thesis on like every website Go read their investment thesis they are Literally telling you what they made in Agreement with their LPS that they're Going to do with this Capital that They're going to deploy once you've Identified those people make a lead Sheet make if you think you have 10 Investors on that lead sheet I want you To make it a hundred right because this Is a sales funnel and it's about swings At bat in order to eventually convert to A home run which is like a term sheet Which we'll talk about in a second but The thing that a lot of people also Don't recognize in the preparation Process to securing a yes from an Investor is an assist list and so those Founders in the room right now who raise Their hand they could be on your assist

List Oftentimes you can build rapport with Investors you don't have any Relationship with by first building Relationships with people around those Investors a lot of time people are so Eager to get to the GP at the fun but They don't really understand you have to Work around those people first because They're going to be the intro that you Need to establish your credibility to Someone who doesn't know you so I'll Pause there and see such excellent Advice yeah I agree with both James and Mandela you know it's the piece that is So interesting to me with working with Early stage Founders is Um is getting in from that that Network Um one of the things I so I started Investing about six years ago and the Things that I've learned in this job is That it's still a very very close Network of people right so yes the folks That you see in this room they're great Resources right playing the game is a Big thing but the biggest thing I've Recognized is actually a confirmation Bias that comes with investing right the You know going onto websites seeing what People like the best kind of Partners You get to work with are the investors Who walk to the end of room with you on A table and they already believe in what You are selling right for Founders who

Walk in a room and to try to convince Investors of a certain truth that's Going to be a really really difficult Task right so so much the game actually Happens before during the meetings right It's all that preparation that you Mentioned it's all to reach out to the Contacts right writing really thoughtful Emails out to investors and then Um and really find the right partner you Can actually find the right Partners Even before having those conversations Right you know in terms of prepping for Those early conversations which are such A great Point there's just so much Groundwork that has to happen just to You know find those right people Um you know what's your advice in terms Of approaching a VC who already has a Very similar Portfolio company because obviously They're not going to invest in the same Company even if you're doing it better That's a conflict of interest for them So how do you sort of think about that Or how should Founders think about that Um I think Um things that are indirect competitors Or kind of adjacent could be signals That they're interested in your space if You're not actually going to cross path With them it's an opportunity one it's Much easier to reach out to that founder And build a relationship

Um because you have something to talk About you guys can potentially have a Sales Channel partnership things of that Nature but that person is actually Performing well for that fund that Person is a great intro to that investor You know the the founder that's making Money for an investor is going to be the Best intro to an investor Um but then if it's someone who actually Could be competitive or most likely is I Typically I personally typically shy Away from it from the sense that Especially if a partner is not reaching Out and seeing a different angle if it's Like some associate reaching out they're Just looking for information and trying To fill up time for their job Competitive analysis right yeah is this Competitive analysis so you know I watch Out for that but there's always Opportunities when I do my investor list I'm always looking at who's investing in Market research who who's investing in Market research around because you know Particularly the consumer insights and Content content consumption and I'm Going to find little products that are Kind of in the realm but they're not Really pilotly at the time right so Those are opportunities to find people That might actually be interested in Cutting a check or early around yeah I Think this I love this question

Um so I had the my first experience Entering this ecosystem was as a Founder With no network in the ecosystem at all Trying to figure this thing out and then Later on in my career I worked at a VC Firm where I was faced with these Questions of like oh we have this looks Like someone in our portfolio already so What happens on the inside is that the VCS consult with the founders of the Companies first who are in their Portfolio who may see this new Opportunity as competitive to align Because your Allegiance is to people you Already made a bet on right and they're You know reputations are hard earned and Easily lost even amongst your portfolio And you're talking about how small the Investor Community is the found the the Funded founder Community is also very Small and everybody talks right about How investors treat you when you're Doing well when you're not doing well so Anyway let me get back to the point I Wanted to make when I heard your Question is that one of the things that A lot of Founders don't recognize and Even I didn't recognize as a first-time Founder is that investors are never just Analyzing you They're analyzing you in relation to the Founder that just left their office in Relation to the founder that's coming Into their office after you in relation

To all the portfolio Founders that they Have whether or not they're directly Competitive or not and so you really Need to have this level of Self-awareness and other awareness to Really cut out a path for yourself on How you're going to differentiate Yourself not just as a company in the Market but as a leader and someone that They're going to believe in because at The earliest nascent stages I don't care How beautiful your deck is I don't care How wonderful and appealing the story is They're making a bet on you as the Leader of this company and their their Belief in your ability to attract the Talent and execute against what you just Put in your ten slide deck right from One tactical thing to add to that is on A competitive analysis piece that's just Part of the investors job right and I do Think there's some responsibility on the Founders side to walk in knowing that Investors do talk right the early stage Scene especially everyone knows each Other that's how we think about getting The best Intel right we have our own Fiduciary duties through our own LPS and So You know being upset at the mechanic Where you know investor looks at you for Half an hour and then invest in a Competitor that's not particularly Productive but recognize that that is

Part of the this journey right and share The information that you're comfortable Sharing but don't over share your secret Sauce yeah and have a Time bound too you Know what I mean part of you you start To get tipped off if they just keep Asking for information without an Exploding offer that you're putting on The table like are you in are you out Um not you know you want to give all Investors the benefit of the doubt but There are some bad actors out there that Maybe can linger the conversation on a Little too long as they're trying to Extract as much information as they can At the same time they're having the same Conversation with the competitor that They're interested in investing in and This is where the fear Rises and Founders but and that's how you want to Say something I was just going to say um The time bound is super important in General Um when it comes to fundraising across The board like we find yourself Fundraising for six to eight months You're not really fundraising it's not Real process so when you make it Time-bound you take control over it and People are stringing you along you can Tell them like hey I have other people Having conversations with we're at this Stage what would it take to get you to The stage what is the rest of your

Process like being inquisitive of where They're supposed to to be at based on What they say their process is if they Start deviating from that then you can Just leave that alone and keep moving on But the other piece was when you're Saying investors talk like in that Particular case it could be a little bit To your disadvantage but it is what it Is you leverage that to your advantage And doing what she was saying where it's Like not 10 investors I mean less than 100 investors on your list right and When you try and Pitch like 100 Investors in 10 to 12 weeks time they Are going to talk if you tell them the Right story it's going to build this Momentum that gets you to the point of Said term sheet so you can use it to Your advantage okay these are all such Great points Um first of all I also wanted to remind Everybody to ask questions in another Like 10 minutes or so I'm going to be Picking this thing up and like answering Your questions directly and opposing Them to these guys Um You guys have touched on so many Different um and interesting points here So in terms of okay let's getting let's Get down to the the you know term sheet Piece Um we're you know we're close we have

Cultivated a bunch of relationships We're in conversations Um so you're so ideally you're talking To it sounds like you know maybe like 10 Or 12 people if possible just to get Sort of like interest going Um and then yeah how long I mean is There any more specific advice in terms Of how long you should be having these Conversations Um and I guess if you're if it's not Turning to something you know what Signal to take away from that and I like To I like to run a 10 to 12 week process Tops like the tops that's one that's you Know you're basically talking about full Round for a full for a full thing for a Program for from from end to end like so Like me as an investor I think some Investors like process can take Seven weeks I like I personally like to If I'm investing I personally can try And do it in five weeks I want to Respect people's time I want to not get Like unfocused I just want to like Decide if that's what we want to do and Not do it other people's process could Be different everybody will tell you Their process as a Founder I'm going to Set out a timeline for how long I'm Going to fundraise I'm going to Particularly choose how many meetings I Want to have each week and I'm going to Set myself up as a funnel like she said

A sales process how many how many Introductions do I need to get to this Many meetings I'm going to go for those Introductions and keep that cycle going And fill up those meetings and in doing That I'm also going to prioritize the People I want to speak with so I have my High priority people who I feel like Should definitely do the deal my low Prior people who I don't think will do The deal but I need to pitch them first Because if my story is a little off or I'm getting a lot of the same feedback I Don't understand the market or I Understand this I want to build a pivot A little bit before I go to the people Who I know should do the deal and so by Mixing up the low priority a little bit Of medium a little bit medium probably a Little bit higher priority and get and Then really getting the thing rolling You get your yourself in a position Where you've personally developed Momentum to tell that story once you Told this story like five ten times in a Week you just become like snap snap and Then you're really ready to go hit the People you want to hit It's really about that momentum right With with textiles we see a lot of Companies and you know we're looking at About I'd say a month or two months After demo day where most companies Raise their their initial round so part

Of it really depends on how big of a Round you're raising or if it's seed Pre-seen you know series there's a Different Beast right but it's really About having enough conversations so you Can build that momentum I think similar To what you mentioned if you have 50 Conversational investors I'd say the First 10 or 20 years that's practice Right it's really being a group being Comfortable with pitching on company the Next 20 those are the ones that you Really want to push on to you know be Interested right to give you really good Feedback and to really work those Conversations and in a final 20 those Are usually the ones that you know Healthy at that point you have a term Sheet those are just the ones who come In to fill out the rest of the round Okay and even if you looked at it like Sports right I'm an athlete play D1 Soccer right so a lot of what I've Learned in sports I apply here and I Think about when I I've trained Founders On preparing for game day right your Pitch meeting is game day when you're Really ready to launch this fundraising Process the season is starting but like Any good athletes you don't just go into Game one expecting you're gonna win you Have exhibition games before right so What are you doing as a Founder to Simulate this experience where you can

Test out your pitch whether it's on Other VC backed Founders or maybe Friendly investors or maybe even Investor that you know is like Um they they invest in series a maybe You're too early for them but they're Willing to take a meeting with you and You can at least test it out but I Really do believe strongly and I even Believe I know for a fact that the most Successful Founders in raising the round The way they want to raise it have had a Clear plan because once you're in the Thick of it and you're managing all These relationships and all these Requests for due diligence like it is Hard it's like a whole other job outside Of just running your company and Managing your team so I really recommend Measure twice cut once like take your Time to prepare great yeah I was going To say what's that you know Um when you think about like How you're actually going to like have That conversation I've actually now I'm Gonna say you should go do this but I Mean now you're on Zoom so you could do It I mean I've walked in the offices and Told somebody like hey man I'm gonna Point this camera towards me it ain't For you it's for me I record myself Having the whole conversation I'll be Like damn that looked really boring but I mean like posture is off my voice was

Super I had no had no intonation it Didn't look like I thought I was gonna Make a billion dollars you know what I'm Saying like recording yourself hearing Yourself this this is a script right you Know what I'm saying like people I can't Record myself I sound like a robot that Means you didn't practice enough if you Practice it enough it becomes second Nature if you want me to pitch black Operator Adventures right now I could Hit the button and we'd be on the game Like this takes practice you know what I'm saying um and it's a great point and To your point uh You know VC s are looking at this like You know And I was uh just leave Sequoia has said Before I think pretty uh eloquently so Okay now you've perfected your pitch You've looked at yourself in the camera You've got your script down people are Interested you're getting term sheets What are you looking for I mean what are what what's got to be There and I'll tell you what as a black Founder I'm just looking for a term Sheet first So first say that again right just Looking for the term sheet first okay so Once you get the term sheet though now The game's really begun because you were Just trying to play the game right like I mean that's that changes the whole

Dynamic of how you can kind of funnel in Your process to get to where you want to Go but like terms wise it just depends On where you're at you do want to make Sure that you're getting an agreement That is at parity with the level you're At with your company you don't want to End up with an angel investor trying to Give you some series a preferred docs or Anything that nature like if you are a Pre-seed company 90 99 of time you Should be using a safe you can get it From y combinator's website it's got all The standard language in it no one can Argue with it be like go talk to Y Commentator about that this is what We're going to do Um when you look into that you can find Some details like most favored nation Which might be like I want to make sure I have the best deal that you put out There will be some Pro added in there Potentially you want to look at do I Have a 1x per addict or is it more than That if there's a higher Pro rata you Want to make sure that this person's Really in on what you are doing it Actually has the capital to it was Actually going to put that money in That's what I like to look for Um James can you slow down a minute so When you say if there's a higher prorata So this is means that the investor gets A bigger bite of your next round or yeah

Yeah so like their their allocation for The next round could be much larger so Like if you really like that person you Know they got the money it's something You can do but someone got like a 2X Parada but you're like I don't really Know if I want to work with this person Forever but they could put the money in Yeah you got you gotta look at that Um you know board seats you look at that Um if again if you're a pre-seater Something and someone wants a board seat It's a little bit of a wild ask but I Put it in a side letter and be like this Expires at this time or if we find it Independent who's going to be more Productive or whatever it is so you're You're fine to join now maybe you can Help me out but I don't want to be Locked in with you for necessary Essentially yeah so those are just some Of the things I look at obviously Valuation if it's a safe is it a Pre-money cap is a post-money cap Pre-money being like that's what it is But then all the money you raise add to That that's the the valuation So like Um I typically am on a post money uh Safe if I'm doing something like that it Was very clear-cut to know like what They're going to get out of it does Everybody agree that you should start With the safe for the Foreign

I I think it's As a as an instrument for Founders I Think it makes a lot of sense right you Don't have to have complicated Conversations with uh you know Equity Pricing at that stage and you can also Lay on different states for a little bit Right so you can push out the Conversation a bit Um you know James I am curious if you've Seen more uh mfns in in some of these Notes that you've seen Um I don't honestly think a lot of Founders even know what that is Um so I've I've Um you know I've presented to people so They can know what it means but it Hasn't been hasn't been something that Has been a big talking point got it yeah I think because the documents have been So standardized the conversation just Becomes limited saves legal fees saves Times gets the money wired faster yeah What I want to say um about this point Is What I want to say because there's so Much How many of you have ever hired Employees I had people working under you Okay and you found your person right you Went through the process of posting and Interviewing all these people you found Your person and they're winning you over You're winning them over and then you

Get to the negotiation of the salary and Then you find like they're kind of Poking at everything what about this Benefit and what about this performance What about this and what about this and You kind of shift how you feel about Them you're like oh this is kind of Annoying like I had all this momentum And good feelings that's what happens With investors and so one of the things To understand is do not wait until you Get the term sheet to start going back And forth right the term sheet should be A reflection of what was already Verbally agreed upon right in terms of The valuation pre or post right all of The things that um James was just Talking about it's really important that You understand that these this is Another human being and this is a power Dynamic and this is fomo momentum and You really want to be prepared all the Way through so don't wait until you get That legal agreement Um in your inbox to then be pushing back Because it's really annoying to Investors and it starts to adjust how They feel about you and I've even seen The point where investors will pull the Term sheet because your job is to um Again We all know we're not bulletproof but You really want to be as bulletproof as Possible in every stage of this and it

Requires preparation and clear Communication and you're forming a Long-term Financial partnership here and So don't wait until that shows up in Your inbox to start really hard Negotiation yeah I was going to say um With respect to that you've planned out Your whole fundraising process at the Same time as you lean into that and Start to see what the market is thinking You also want to have a bottom line in Terms of what you're willing to accept And like at some point you make Capitulate but know you're about online Right and be convicted around it and by Being convicted around it and having Reasoning as the why you're convicted Not just I want these terms just because There's actual reasoning around the Things that you're sticking to then Actually going back to what she was Saying presenters she was a strong Leader they're trying to invest in Leaders so like they know there's going To be a power Dynamic here about how you Manage that how you move things forward Plays out how they think you're actually Going to do other things like hire Employees or get customers or any of That guys getting down to Brass tax and I want to turn it over the audience now A great question is how much Equity is Typically distributed at each level of Rate amazing is pre-seater on 10 percent

Seed around five percent series a twenty Twenty percent Etc Uh what percent do you say for C 10 okay I mean I think in today's market it Sounds kind of about right I mean Valuations were out of control like 12 Months ago so it might have been like Lesser ownership for some people but Temperance is really fair right now 10 Is pretty fair right now yeah yeah and The 20 makes sense for today Yeah but no more than 20. hold on oh Hold on yeah exactly we also mentioned Multiple mobile safes Kevin and I wonder Do founders run the risk of losing like Sight of how much money they've Um Ownership they're sort of giving away in That scenario well I forget it depends How how Wild the founders go right Um You know typically to the states I've Been seeing more recently we're looking At kind of seven to ten cap which has Gone down from last year right where it Was it was crazy Um Yeah Think on that Uh let's see what if you have a safe and Then go into a low next round from an Accelerator like techstars will they Adjust their investment to meet your

Safe We we do not and actually across the Board I think it's mostly standard terms These days for you know when I look at YC we're going to look at 500 it's Mostly standard terms yeah There's some different opportunities There though too right because I believe Um like techstars like they had the Program component and then they have the Access to money component right so say You already raised money but you really Want to be in Tech Stars you don't have To take The 100 Grand or whatever it is sure Yeah yeah but uh so on on the note on a I guess piece about being flexible uh we Do have uh we have flexibility on the 100K convertible note Um if you've raised a little more money It can go a little bit higher okay it's Still pretty standard I guess like the one thing to to plug Here is you know if you raise money and It's at a higher terms than what we Would offer part of why some Founders Still come is because of what a value Add piece is that textiles provides Right we have a lot of programs and We're a big program with JP Morgan we're Big programs with different Healthcare Systems and for later stage Founders Getting that access they they think the Math works out for them

Um one question that I meant to ask and I'm glad somebody did what is a red flag To look for in a term sheet that should Absolutely not you know Oh Foundation that I mean if I see like Exclusivity if there was a thing around That Um non-founder friendly anti-dilution Clauses Liquidation liquidation are you seeing Those at I mean are this coming up Already now and with this changed Market I think people again like the the Documents have got so standardized to a Certain degree like only Bad actors are Trying to put stuff out there like that So those are like signals that someone's Not really looking to be having your Best interest in mind right for the Longer term sure yeah the whole point of The safe agreement it's a simple Agreement right that's the whole point Equity yeah the whole point is to Simplify this negotiation this power Struggle for ownership in the company Between the founder and this investor at These early stages when really your deck Is an idea right for the most like we All know what this is like there's Certain degrees of traction right at This stage but let's just cut through The noise we we Norm at this point and No I I don't think there's been too much Adjustment at the early stages like

Pre-seed and scene I think those are Later stages like even when we talk About liquidation preferences but Um most of the investors That I work with and know of that are Investing at the pre-seed and Seed stage Using safe yeah so because of safes There's really no like terms that they Should avoid yeah and well I mean Anybody can do anything but um Truthfully but uh I would say like you Know say I mean we'll get into the Preferred Equity component of this but Like Um I think another thing to think about Is someone's ability to like veto a Future around the funding you know like Sometimes people want to make sure They're not getting down rounds or not Being diluted a certain way so Um that's something else to look out for Like is anybody trying to position Themselves to have the veto power over What the next round of financing is or What the structure of it should be right So one point on that so especially for Founders who are international if they Take money from investors who are not Basic or not used to Market terms yet Sometimes your returns that will be Prohibitive for you as you think I'd Follow around following around right and So that's something to be aware of Especially if you are a company that's

Looking to flip to the us at the series A or series B right recognizing that if Your existing investor has Clauses in That uh more kind of protectionist right Trying to keep the company in the Country on the region that's something That you might want to consult a lawyer Early on interesting yeah there was Something I wanted to say and it just Escaped me but it was around this Concept you alluded to earlier about Like if you're a black founder she's Great to have a term sheet so rare same With women right and women of color in Particular black women Um what I wanted to say is that if and This is why it's so important to Understand the rules of this game before You decide to play it and start playing It because you can be take getting you Can be taken advantage of right and what You may not realize because you're in These agreements you're just like okay Yes someone said yes to me I'm going to Take this is the consequences of that Decision when you go out to raise your Next round because those more Sophisticated institutional investors Are looking at these like WTF like I'm Not touching this right because you've Already made a miscalculated decisions And without recognizing how it's Impacting your ability to bring in more Established or even larger rounds of

Capital and so what people are assessing You for is are you a good Steward of Capital Right and so I think this is like a real Switch you have to do from being an Inventor of a product Are you a CEO of a company who can Manage investor relationships and be a Good Steward of capital and that's what They're assessing for as well that's a That's also an excellent point Um How do you approach conflicting opinions This is a great question um from Investors on valuation in terms I was going to say Obviously tacking on Because we're talking about worrying About what the investor is doing again Going back what she's saying worry about What you're doing to yourself too like When you think about the valuations of Things like if you have if you have a Substantial reasoning around how you're Positioning your evaluation I feel like It's hard for an investor to argue at Most times that investor might be Arguing for a certain amount of Target Like ownership of the company that they Have for their own personal portfolio Construction but like you know if you Have real reasoning around said Valuation you shouldn't be having too Much you know too much debate really Right there because this again it's such

Early stage if you guys are both super Excited about what's going to happen and There's some sort of like grounding Around that like it should be fine at The earliest stages you know it's an Idea it doesn't really exist it doesn't Make money I mean let's just be Realistic you can go and lie and be like It's a 40 million evaluation but um Truthfully like most pre-see rounds in Reality should be somewhere between the Range of like I mean at the lowest for Me like a three million dollar Evaluation maybe at the highest 10. it Doesn't exist so let's put it somewhere In the range based on your background The possibility that's going to have Some sort of success and like let's all Be reasonable once you start escaping That realm you start going into like Random you know a false reality right But I think as a Founder one thing to Keep in mind is like uh the hired Evaluation not the better like building A company is actually hard so I've Actually sat down our companies who has Raising a certain valuation it's a Pre-seed they ain't really making no Money they want a 10 million evaluation They want 750k you can maybe not build That much with 750k and the thing is You're going to go raise more money when You go do it if you didn't hit a certain Milestone create a certain level of

Momentum you know you will not be able To raise another round or extension Above that valuation now you've killed Your whole momentum you start to kind of You know degrade your ability to raise Capital it's storytelling it's Storytelling your pitch deck is a Children's book right it's a bunch of Photos a little bit of words small Amount of pages it's a story right and So whatever story you tell and you add a Number to that in terms of how much Capital you're bringing in at what Valuation at what cost right is to the Milestone point that you were talking About they're going to go look back at That story and say did this come true Did this Fairy Tale come true and then From when you're getting ready to raise Your next round they're going to ask you How did that last story go because You're selling me this new story so you Have to be wise about what you are Telling and of course it's not all going To work workout it actually will not all Work out right it's good it never will You're Building off a set of assumptions And some data right and so everyone Knows on both sides of the table right We're doing the best we can to figure This out as we go and the next story Will be iterated accordingly but you Don't want to have too much Divergence Because that's when they start to look

At you differently and you become less Of a Reliable source of leadership and Information for this Market yeah can I Just this is random reiteration it will Not go the way you planned yeah I mean It didn't go everybody knows that it Didn't go that way for Elon or Steve Jobs either you must like you might like Them it didn't go their way either it Should not go the way they planned I Promise you so something to be said About how much leverage Founders do you Have though right you go through the Process for investors A lot of the funds you talk to you're Doing maybe five to ten deals a year Right by the time they put a turn sheet In front of you they're here to do Business right they want to work with You can you say that again yeah that's Super important people realize how many Founders have a lot of Leverage and most Investors make very few Investments Right so if they are in front of you With a term sheet you should negotiate It is it's like getting a job right you Know we go to jobs we didn't know any Better we go to the jobs they're going To pay us like that sounds great we'll Take that money wrong because if you Offer me a job you need to offer me the Most money you can pay me for said job So let's start talking about what else

Can we get out of this conversation That's going to make me happy and get You get you what you want because you Want to be with me right my name is James to that point you mentioned Earlier the black Founders tend to take Term sheets right away because they're They're like newer to the industry they Have less experience they may don't they May underestimate their leverage they May be facing bias so I think this is Truer of them but this is true of every Founder you get that term sheet what do You do with it like how do you then drum Up more interest how do you sort of if You're establish more leverage for Yourself like how do you talk to other Investors without burning that first Investor if you're lucky enough to have I'm not lucky enough if you were smart Enough to have set up your process and You're lucky enough to have that term Sheet come earlier earlier earlier in Your process it just helps you to create An anchor and a driver to push people Down to the funnel you're created so Like the best case scenario is you've Been talking the founders you've been Meeting some BCS you've been telling Them like hey I'm not raising yet I Might be raising in the next quarter but Would love to be able to keep in touch The best thing is like you meet some People along that journey and someone

Says I'm really interested in this like I think we could do a deal like XYZ and That kind of preemption process so now You can begin your process knowing that There's someone else in your corner That's not going to happen most the time Um so then once you get into your Process you've made some relationships You've gone through two two or three Meetings because remember you're always Trying to get to the next meeting right Um so once you've gone through those you Actually get that term sheet in Now You Give a Little Bit the room you want you Want to respect people's process but if You're into the depths of someone's Process that you think is really Interested it's time to follow up and as You go through your process another Thing you want it's like different Updates on progress you're making right New things that reach out to them with So when you reach out you say hey we had This practice with the company and it Looks like we already have some interest So now next week we're going to be Looking to see Next week we're looking to see are are You actually going to be interested in Investing we like to get together Partners that actually want to be a part Of the round and we already have you Know we already have a term sheet in Place but we're really interested in

Working with you so we'd love to see What you have to offer but like now you Have something to say hey come see me if You're really interested this person Wants to be here but I'm also very Interested in you so I'd love to see What you had to provide right it's very Much very much using it as leverage for Forcing function right and this is why The momentum that you described earlier Matters right you have 20 30 Conversations one person comes in with a Term sheet everyone else is still Waiting in line and kind of taking that Time you go back to the term sheet you Accelerate the timeline right that is That is the key there and I guess at one Point somebody this is an audience an Attendee question at what point should You walk away from an investor if you Cannot agree on terms I guess maybe at What point do you know that you can't Agree on terms like there's just you Mentioned it all right yeah if you don't Want if you don't want to lose that Investor you know your floor right like Um I think again like if you are Articulating your if you're articulating Your bottom line like like very like Just just very clearly and there's Reasoning around it and someone won't Meet you there and you're a precc Stage Company it's probably not the person you Want to work with so like you just have

To contact the L you gotta be like man I Do really want to have this money but Like you don't really want to be trapped With someone who doesn't really want to See you successful because again Building a billion dollar company like Yeah you can have the smartest people Building a company it doesn't happen Just by one person it's like people Around you really helping you do it if You if you're getting in business with Someone who doesn't even want you to win Right now like it doesn't it doesn't Have any sense to think that that person Was going to help you win in the future Sure yeah I think the preparation I'm Kind of answering the question but kind Of not but I think I want to say this And I think I don't want to say this is A the preparation piece that I keep Going back to if you're raising a Million dollars right there's many ways You can raise a million dollars you can Say I'm gonna go after just Angels right And I'm going to get a hundred angels to Invest 10K in my company right and the Reason I'm going to focus on Angels is Because it's their money they can do Whatever they want with their money Right whereas you can say never mind I'm Going to have two investors and I'm Going to go after two 500k checks I'm Going to have four investors go after Four quarter million dollar checks

Whatever it is but you need to have a Plan because there are trade-offs and There are consequences depending on who You're going after and who you're Partnering with it's just really Important there's something else I Wanted to say but it left me so continue And another question can you renegotiate An initial term sheet after getting more Follow-on funding and momentum in other Words fight a most favored I mean you Can never really negotiate the actual Initial one but surely I've come in Situations where do people who invested Before me do not have the same terms I Have now we might go back to them just Because we want to be cool and be like Yo it's actually this now yeah because This is supposed to make sense for the Company it's beneficial to us it is a Lower valuation but it's actually Beneficial to the company based on what Their Milestones are going to be how Much money they need their ability to Raise future rounds but you know again If there's reasoning and sound and sound Reasoning around it there's always room For change with people who want to see Someone successful so the opportunity is There it's not it's not popular I don't Think I think most people just see the Deal it's like well I won the deal I Follow what's there but if you think it Through

Yeah yeah and I know we're talking about Capital but there's so much that you get From investors Beyond Capital right like This should be a part of your plan like Are you like I would take a smaller Check from somebody who maybe has domain Expertise or has this other massive Network that I could unlock and get into Right so don't always just size people Up based off of how much money factor in Their brand their Network their domain Expertise all the other things that you Can Leverage Absolutely I was going to say the next Question and I would say yes is is it Okay to be flexible on certain terms for A high value investor and it sounds like You're saying you know 100 I'm we're Gonna miss that right now someone's Going to give up a decent percentage of Their company but for the opportunity to Build something that they could never Build without the support of these People who have repeatedly Made billion dollar companies in this Space right they want to work with this Person yeah and so it's like this is how Our portfolio constructed typically We're going to be working with you at This stage but we like what you're doing You like us you're like okay let's get It done now it's gonna be a hit on it's Gonna be hit but that's going to change The whole trajectory because owning 70

Of something that's worth 50 million Dollars is very different knowing 20 is Something that's worth a billion dollars Right absolutely guys we're out of time But thank you so much for joining us I Hope this is instructed for the audience I learned a lot

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