I've been investing for 13+ years.
The single most important thing to investing well?
What I wish I knew in the beginning?
DEAL STRUCTURE: 5 things to know a 🧵
The single most important thing to investing well?
What I wish I knew in the beginning?
DEAL STRUCTURE: 5 things to know a 🧵
#1 Dealflow is great, but structuring is KING.
Doing a deal w/o knowing structuring is like signing a prenup w/o reading it.
When you structure a deal you need to understand the terms and where you have leverage. Here are some easy places to start:
Doing a deal w/o knowing structuring is like signing a prenup w/o reading it.
When you structure a deal you need to understand the terms and where you have leverage. Here are some easy places to start:
#2 Term sheet is ONLY the starting point.
Would you go to a swap meet & not negotiate?
Don't invest in a company w/o negotiating.
If you LOVE a startup, go ask an investors w/ 10+ years experience, how's the structure look? Could I protect my downside or increase upside?
Would you go to a swap meet & not negotiate?
Don't invest in a company w/o negotiating.
If you LOVE a startup, go ask an investors w/ 10+ years experience, how's the structure look? Could I protect my downside or increase upside?
#3 FOUNDERS: Ugh, don't negotiate with me.
Actually, you want investors who know how to structure deals & negotiate.
Why? They'll do it for you too.
M&A, leases, partnership agreements.
BEST INVESTORS will often be your most difficult to start.
Pain now = Profits later
Actually, you want investors who know how to structure deals & negotiate.
Why? They'll do it for you too.
M&A, leases, partnership agreements.
BEST INVESTORS will often be your most difficult to start.
Pain now = Profits later
#4 If you have a big name, companies you invest in will use it.
- Make sure you are compensated for that
- I.e. term sheet goes out for $2M, common stock and you take a chunk.
Ask instead for options on top for them to use your name as an early investor. FREE MONEY.
- Make sure you are compensated for that
- I.e. term sheet goes out for $2M, common stock and you take a chunk.
Ask instead for options on top for them to use your name as an early investor. FREE MONEY.
#4 If you have a big skillset, ask for warrants
- If you can help the company grow, cut costs, do a partnership
- Put $ into the deal but ask for some upside like warrants
Then you get extra equity for your superpower to put to work.
- If you can help the company grow, cut costs, do a partnership
- Put $ into the deal but ask for some upside like warrants
Then you get extra equity for your superpower to put to work.
#5 If it's common stock, almost always ask about preferred
- unless you're in the hottest deals in silicon valley you are probably able to get it, which is CRUCIAL
- unless you're in the hottest deals in silicon valley you are probably able to get it, which is CRUCIAL
#6 Want to see if an investor is really good?
Don't just ask about the deals they're in. Ask what they negotiated into the deal?
Just had a call with 2 well-known founders, they invested in good VC deals at TERRIBLE TERMS.
Why? Good founders but bad at structuring.
Don't just ask about the deals they're in. Ask what they negotiated into the deal?
Just had a call with 2 well-known founders, they invested in good VC deals at TERRIBLE TERMS.
Why? Good founders but bad at structuring.
I've owned 70+ businesses w/ partners (ALL types)
Structuring can save bad deals (sometimes)
TLDR:
- never take 1st terrm sheet
- look for saavy investors
- use ur assets to get more equity
- pref > common
- don't just show me ur deals, show me ur tterrms
Structuring can save bad deals (sometimes)
TLDR:
- never take 1st terrm sheet
- look for saavy investors
- use ur assets to get more equity
- pref > common
- don't just show me ur deals, show me ur tterrms
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