Behind the scenes in VC negotiation
A Dow Jones story in the Wall Street Journal (subscription required) about MoFo (the law firm Morrison & Foerster) having a few dozen folks over for a mock VC-entrepreneur negotiation. This is always the most interesting part of getting funding involving skill, emotion, and drama:
Through arguments over everything from conversion rights to antidilution provisions, the battle lines are clearly drawn. For the entrepreneur, the focus is on the blood, sweat and money he has put into the company, and being duly rewarded and respected for them. But for the venture capitalists, it's all about protecting their investments.
"The split you start to see at this point in the negotiations is real, and I've lived through it," Mr. Smith said. "For me, the hardest part is to tell a co-founder who has been with me since Day One that, 'Look, the world has now changed and you're no longer part of it.' That's what I'd dread most."
That task, Mr. Bartlett quipped, is even tougher when the co-founders are related, which is often the case.
For venture capitalists, the key is not to push so excessively that the founders are reduced to the role of mere employees. "It's bad for morale, and if you want your founders to be like employees, you're really not getting your money's worth," Mr. Bartlett said, playing his part to the hilt. "Entrepreneurs are still underdogs in this economy."