Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist

You should have reasonable and customary D&O insurance for yourself as much as for your VCs. While the indemnification clause is good corporate hygiene, make sure you follow it up with an appropriate insurance policy.

As an entrepreneur, you should also ask that the no-shop clause expire immediately if the VC terminates the process. Also, consider asking for a carve-out for acquisitions. Frequently financings and acquisitions follow each other around. Even if you’re not looking to be acquired, you don’t want handcuffs on conversations about an acquisition just b

Your chances of eliminating the co-sale agreement clause may be zero, but there’s no reason not to ask for a floor to it. If you or your cofounders want to sell a small amount of stock to buy a house, why should a VC hold it up? A right of first refusal on the purchase with a bona fide outside offer’s valuation as the purchase price is one thing. A

Regardless of the actual thresholds, it’s important to never allow investors to negotiate different automatic conversion terms for different series of preferred stock.

Finally, we don’t believe in ranges in the fundraising process. When someone says they are raising $5 million to $7 million, our first question is: “Is it $5 million or $7 million?”

If you are of the paranoid mind-set (which I generally applaud), feel free to insist on a strict confidentiality clause to accompany your information rights.

How do you actually close the deal? Separate it into two activities: the first is the signing of the term sheet and the second is signing the definitive documents and receiving the cash.

In the executive summary, include the problem you are solving and why it’s important to solve. Explain why your product is awesome, why it’s better than what currently exists, and why your team is the right one to pursue it. End with some high-level financial data to show that you have aggressive but sensible expectations about how your business wi

If the VC is pushing for a larger option pool to come out of the pre-money valuation but the entrepreneur feels that there is enough in the pool to meet the company’s needs over the time frame of this financing, the entrepreneur should say, “Look, I strongly believe we have enough options to cover our needs. Let’s go with it at my proposed level an