Chapter 6 - Negotiating the Deal
IN THIS LESSON
Terms Are Best Negotiated by Investors and Founders, Not Lawyers
It can be easy to fall into a trap of thinking that lawyers are the ones who should negotiate the terms of the contract with the investor (or the lawyer of the investor). This is hardly the case and often results in misunderstandings and disappointments.
As the founder and CEO of your own start-up, you are responsible for negotiating the terms of the contract. As such, you need to represent your company’s best interests. You also need to know every major detail of the contract and understand the implications of each item on your company, now or in the future.
The lawyer can start the contract, but word to the wise: make sure that the lawyer does not overdo it. Lawyers can spend a bunch of time on well-meaning but useless terms. Not only do you not want to have to pay for “useless” legal work, but you also don’t want a contract that is confusing, convoluted, or full of extraneous details that are not that important. Also, the lawyer may also be looking at the legal implications of the terms of the contract to help reduce the risk of you being sued or being blamed for a liability.
But the contract is more than just a tool to reduce risk. It defines your relationship with the investor and by this time you should know the investor and the nature of your relationship with the investor so well that the negotiation of the contract reflects the relationship. Remember that investment deals are not one-off, transactional interactions. When you sign an investor into your business, you are both entering a long-term relationship that is akin to a marriage of sorts. This is why your relationship with your investor should be on the best possible terms, and your contracts should also reflect the underlying dynamic.
As the leader of your company, your role here is to guide the lawyer to focus on high priority items and to cover your bases. However, negotiation is your game to play. And it can be a rather tricky game to play. So don’t delegate your leadership role and negotiation power to a lawyer. Your job is to negotiate the terms with the investors, and your investors expect it that way. So, step up to the role!