Notes

"For the entrepreneur, an experienced lawyer who understands VC financings is invaluable. VCs make investments all the time while entrepreneurs raise money occasionally."

Never forget that your lawyer is a reflection on you. Your reputation in the startup ecosystem is important, and a bad or inexperienced lawyer will tarnish it.

If the lawyers are unwilling to agree to a modest fee cap, you should question whether they know what they are doing.

A competent lawyer who knows her way around startups is worth much more than someone who specializes in estate planning but charges half the rate per hour.

"Investors will expect a startup to be qualified to do business in every state in which the company is operating and be able to provide legal documentation to confirm their registrations in each state. You should work with counsel to verify that the company is qualified as a foreign corporation to do business in every state in which it has operations requiring such qualification."

"Given the importance of a company’s intellectual property, you should be rigorous in ensuring that every person who comes in contact with your company’s intellectual property signs confidentiality and assignment agreements. At a minimum, these agreements should identify the parties, the intellectual property in question, and any consideration associated with the IP assignment. We’ve seen venture deals fail to close because something as simple as one IP assignment agreement was missing."

"Given that these advisers have access to a startup’s intellectual property, they should also sign agreements to maintain the confidentiality of a company’s IP and ensure that the IP is owned exclusively by the company. When advisers do not assign their IP rights, issues can arise where an adviser may be categorized as a co-inventor or joint inventor of a company’s IP."

"Instead, you should start with an attitude of presuming success. If you don’t, investors will smell this uncertainty on you if it permeates your words and actions."

"If you need to talk the investor through it, you have lost the battle before you’ve started. Do not make the common mistake of thinking that you’ll send out a teaser and then get to talk through the details at a meeting. Realize that whatever you send a VC is often both your first and last impression, so make it count."

-Read and Revise Short Desc. + Exec Summary

"Demos are just as important in existing companies. If you have a complex product, figure out a way to show it off in a short period of time. We don’t need to see every feature; use your demo to tell us a story about the problem your product addresses. We want to play with the demo, not just be passive observers, so give us the steering wheel. While we are playing, watch us carefully because you’ll learn an enormous amount about us in that brief period of time while you see how comfortable we are, whether our eyes light up, and whether we really understand what you are pursuing."

"A typical VC gets thousands of inquiries a year. The vast majority of these requests are from people whom the VC has never met and with whom the VC has no relationship. Improve your chances of having VCs respond to you by researching them, getting a referral to them, and engaging with them in whatever way they seem to be interested in."

"List out all of the hires you plan on making between today and your next anticipated financing date and the approximate option grant you think it will take to land each one of them. You should be prepared to have an option pool with more options than your budget calls for, but not necessarily by a huge margin. The option budget will be critical in this conversation with your potential investor."

"It’s usually easy to spot zombie VCs. Just ask them when they made their last new investment. If it’s more than a year ago, it’s likely they are a zombie. You can also ask simple questions like “How many new investments will you make out of your current fund?” or “When do you expect to be raising a new fund?” "

"One important thing to understand about your prospective investor’s fund is how old the fund is. The closer the fund is to its end of life, the more problematic things can become for you in terms of investor pressure for liquidity"

"When you are going to negotiate your financing (or anything, really), have a plan. Have key things that you want, understand which terms you are willing to concede, and know when you are willing to walk away."

"One successful negotiating tactic is to ask VCs up front, before the term sheet shows up, what the three most important terms are in a financing for them. You should know and be prepared to articulate your top three wants as well. This conversation can set the stage for how you think about negotiating down the road, and it can be helpful to you when you are in the heat of a negotiation. If the VCs are pounding hard on a point that is not one of their stated top three, it’s much easier to call them out on that fact and note that they are getting most or all of their main points."

"Regardless of how much you think you know or how much you’ve read, hire a great lawyer. In many cases you will be the least experienced person around the negotiating table. VCs negotiate for a living, and a great lawyer on your side will help balance things out."

"And it’s not good to hire an investment adviser who will do the same. VCs know when they are getting a personal pitch versus spam. We don’t know any VCs who react well to spam."