Chapter 6 - Negotiating the Deal
IN THIS LESSON
Don’t Make Material Changes at the 11th Hour.
You’ve probably been in a situation in which someone else wants to make changes to something at the last minute. Often, these changes in the 11th hour led to mistakes because there is simply no time to analyse all the implications of the changes. There could be something unforeseen that even one change could cause as a ripple effect.
Therefore, the best advice we can give you is to avoid making any material or substantial changes at the 11th hour. You simply cannot be making any huge changes to the economic terms of your deal at the last minute. Doing so can be misperceived by your prospective investors as poor form, or worse a sign of indecision, impatience, or incompetence. Instead, make all significant changes during the negotiation period, including the due diligence stage. This is the appropriate and expected time to go back and forth, not the 11th hour.
Some material changes that you should not be changing near the end include number of shares, amount of money and liquidation preferences, among other things that are substantial and would have a significant impact on you and your company.
Besides increasing the risk of making mistakes or putting yourself inadvertently at a disadvantage, it is considered bad form for both parties. So, this rule also applies to you as a person who potentially would want to make changes in the 11th hour. Such a move could infuriate the investor, even if you think it’s “easy” or “no big deal” to change a number on a piece of paper.
To avoid this situation, be proactive earlier in the process. If you want to change or adjust the terms of a deal, bring it up earlier when you are at the negotiation table. Making material changes at the 11th hour is tantamount to getting out of your passenger seat once the cabin door has closed, once the airplane has started to taxi to the runway, and then demanding to change your ticket to fly to a different destination. It’s a recipe for disappointment, disaster, and will ultimately deliver a negative impact to you, your company, and potential investors.