| The typical terms of a VC round give the VC sufficient actual power that they are difficult to ignore. They will have veto rights on major company decisions. And, assuming they have a board seat, you will be having regular board meetings in which they will have the opportunity to weigh in on strategic decision-making. I have been involved with board meetings pre and post-VC investment, including with top-tier VCs. And it is night and day. Pre-VC investment, these meetings (if they happen) are informal. Post-VC, they become akin to a presentation to the VC, with the VC taking the role of the real "boss" in the room. What I tell founders I am advising is this: 1) Delay VC funding until you really have use for the money and cannot fund through other means (bootstrapping, angels, etc...);
2) The best time to get funding is when you have leverage to negotiate; and
3) Most importantly - USE that leverage. The terms of your VC financing round massively impact the founder's ability to control the company's future and enjoy the economic fruits of their labor. So, you really need to push as hard as you can - as hard as the VCs will - to get terms in your favor. Your VC will sell you as your partner and that can be true. But when you are negotiating investing terms, they are not your partner. That negotiation is simply a zero-sum game. Your VC will want to position the company to their benefit (which is totally rational) by:
1) Minimizing their risk and pushing risk onto the founders;
2) Extracting as much of the economic benefit of any potential exit or pre-exit liquidity;
3) Obtaining as much control as possible. This does not end when your Series A closes. For example, your VC will likely pressure you to hire their hand-picked attorneys. This is a smart and calculated decision on their part. These will be attorneys who count on the VC (and not you) for repeat business and there will always be an element of a conflict in the representation. Think about it - when you are negotiating your Series B and the VC's hand-picked counsel is trying to "help" you negotiate with the Series B investors, are they really going to play hardball with your Series A VC to take or share the dilution and control hits that your Series B investors are trying to foist on the company? Of course not - at least if the attorneys want the VC to come back to them with work again... Don't get me wrong. A high-quality, well-chosen VC can bring experience and connections that can help your company immensely. And funding can help you achieve things you cannot achieve by bootstrapping. But, at a minimum, go into any funding round with your eyes open, good advisors on your side, and a willingness to negotiate as hard as your VC will. Remember, a good negotiator will usually respect you more if you negotiate as hard as they do. |