entrepreneur workshop - negotiating the deal
Post on 08-May-2015
1.148 Views
Preview:
DESCRIPTION
TRANSCRIPT
E n t r e p r e n e u r W o r k s h o pG u i d e t o N e g o t i a t i n g “ T h e D e a l ”
w i t h A n g e l s
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
MLA CONNEC TS
Our mandate is to connect experienced accredited investors, and the brightest, most passionate entrepreneurs in an effective investment process.
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
Ryerson DMZ
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
INVESTMENT HISTORY
Sentient Magnetic
23 Investments$10 Million +
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
How Does MLA Invest?
Considerations:• Management Team• Product/Service• Market Opportunity• Proof of Concept• Go to Market Strategy• The Financial Deal• Use of Proceeds• Exit
Pre-Money Valuation?
Typically under $4Million
MLA has Monthly Investment Meetings
Interesting in presenting to members?
See Hilary after the workshop!
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
MLA Resources
Funding Process
Pitch Deck
Executive Summary
W h o A m I
Telecom Executive - 20 + Years in North American Industry• Former Fortune 100 Executive – Bell, Stentor, Alcatel-Lucent• Current Serial Entrepreneur• Current Angel Investor• Entrepreneur/Youth Mentor• Regular BNN Panelist on “The Pitch”• Expertise in General Management, Enterprise Sales, Operations,
Technology Development
My Current Gig:- ISP/ Telephone Company and SaaS Provider of Hosted Solutions- B2B Customers Coast 2 Coast- 100% YoY Growth last 3 years
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
T h e E n t r e p r e n e u r ' s D r e a m
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
T h e Q u i t e O f t e n R e a l i t y
Negotiations should be the Beginning of the Relationship with your investors
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
N e g o t i a t i o n S t y l e s
Conciliatory (Accommodating) Style-Yield to relation-Lose/Win
Collaborative Style-Grow Pie and divide
-Win/Win
Avoiding Style-Get what is left- Lose/Lose
Competitive Style-Win at all costs
-Win/Lose
Compromising Style-Divide Fixed Pie
-Win/Win & Lose/Lose
Focus on Outcome
High
HighLow
Focu
s o
n R
elat
ion
ship
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
A g e n d a
• Negotiation Spectrum & Styles
• Negotiating with Angels – some fundamentals
• Negotiation with Angels – some common hurdles
• Q&A
Not a Destination but a Journey
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
N e g o t i a t i o n S p e c t r u m
Entrepreneur’s Desired TermsInvestor’s Desired
Terms
Lose-Win
Consequence of No
Agreement
Collaboration CompetitionConcession
What is Collaborative Negotiation
BATNA: Best alternative to a negotiated agreement
Consequence of No
Agreement
Win-Win Win-Lose
BATNA: Best alternative to a negotiated agreement
The ability to walk away
Trades
Create joint value and divide it given concerns for the ongoing relationship
1+1 > 2
Trades
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
S o m e F u n d a m e n t a l s
• Negotiation starts well before the Term Sheet (or even the initial investment Pitch)
• Negotiate “Interests” and not “Positions”
• Two Key “Interests” in any negotiation
– People and Desired Outcomes : Remember to separate the two !
• Relationships - Its NOT about who you know; Its about who knows you:
– Start the relationship well before you need money
– Start setting realistic expectations from the get-go
– Communicate in the investor’s language and communicate often
– Listen actively, Empathize, Establish rapport and then Influence
An Encounter .....vs..... Marriage
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
T h e P r o c e s s
• From Your Perspective and the Angel’s Understand:
– Interests
– the Measures of Success
– Key value drivers in the investment
– Leverage
– Consequences of No Agreement & Best Alternative to a Negotiated Agreement
– Trades
• Identify areas of agreement and disagreements
• Frame negotiation as a joint search for a solution
• Trouble shoot disagreements: bargain & seek alternative solutions, introduce trade offs
• Agreement and close: summarise and ensure acceptance
The better you know yourself and your partner, the better the outcome
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
Yo u r I n t e r e s t s
• Value versus Valuation– Everyone always thinks that valuation is the most important thing
in a deal. However, the structure of the security can be much more important in the long run.
– Think beyond the money - credibility, networks, advice and an extra pair of hands (sometimes the money may be good but the rest may not !)
• Focus on terms that matter– A typical term sheet will have more than 20 terms spelled out in it.
There are only a few that will really matter.
– Spend time on the understanding and communicating the unwritten terms
– Only then spend time on the concrete terms such as valuation, the type of security, your own compensation and rights, the option pool, and Board composition.
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
T h e A n g e l ’s I n t e r e s t s
• Angel Investor is an individual investing their personal money and time in an Early or Growth Stage Company in return for
– Financial growth
– Personal growth – serving as a mentor to CEO or on company Advisory Board or BOD
• For many cash is not the only driver
• Angel Investing for the most part is Active Investing not Passive
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
A n g e l I n t e r e s t s C o n t i n u e dPeople:
– Investing in what they know – vertical & functional expertise
– An entrepreneur they want to (can) work with
• Passion, Knowledge & Skills
• Skin in the game
• Experienced and realistic management team
– Other trusted investors/stakeholders
Desired Outcomes:
– A good “deal” for the risk of time, money and reputation
• Realistic sales and marketing plan
• An understandable validated value proposition (pain points, urgency, willingness to buy)
• A scaleable realistic business model & clear strategy for commercialization
• Sustainable competitive advantage (ie. Barriers to entry such as IP)
– Leverage
– Sufficient Runway (Understanding of cash flow, uses and burn)
– Investor exit strategy in 5 to 8 years with sufficient returnswww.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
M e a s u r e s o f S u c c e s s
Entrepreneur
• Sufficient runway (cash and resources) to execute to next defined injection milestone
• Freedom to succeed (Fingers Out but perhaps Nose In)
• Still an owner not an employee
• Access to knowledge and networks
Angel
• Reference able Deal
• Bragging Rights
• Participation
• Fair Valuation/Future dilution
• Good Relationship
• Peace of Mind
• Sufficient runway to execute to next defined injection milestone
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
K e y Va l u e D r i v e r s
• Product solves a real problem
• Market
• Management/Advisors
• Customers
• Intellectual Property
• Strategic
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
L e v e r a g e
Entrepreneur
• Management Expertise/Advisors
• Market Traction or Anticipated Demand
• Lead/ Follow-on Investors
• BATNA
– Competitive bids
– Long runway
• Leverage Funding
– IRAP
– FedDEV
– SRED
• Patents/Exclusivity
Angel
• Cash
• Reference able name
• Access to resources
• Other Investors
• Time
• Be careful of expectations set early on
• Performance based terms
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
C o n s e q u e n c e o f N o A g r e e m e n t
Entrepreneur
• BATNA
– Other Term Sheets
– People who will do a follow-on
• Enough Runway ?
Angel
• BATNA
– Other Investment opportunities
• Lost opportunity
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
Tr a d e s
• Valuation• Compensation• Non-Competes• Type of Security• Liquidation Preference• Dividend Preference• Anti-dilution Provisions• Option Pools• Board of Directors/ Observer Rights• Veto Rights (Protective Provisions)• Requirements to buy out investors• D&O and Key Person Insurance• Restrictions on Founders’ Right to
Transfer Shares
•Reporting Requirements•Down Round Protection•Drag Along/Tag Along•Convertible Debt Valuation Caps & Discounts•Change of Control•Reps and Warranties•Founder Stock Vesting•Who Pays Legals•No Shop
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
C o m m o n H u r d l e s
• People Related:– Assumptions & Miscommunications– Transparency
• Financials• Customers• Milestones• IP Ownership• Third & Related Party Relationships• Cap Table• Resource/People Commitment
• Ego• Founder Compensation – Too Low
or Too High• Focussing on Position vs. Interest
• Outcome Related:– Messy Cap-Table– No exit strategy– Lifestyle vs. Scale-able business– Use of Funds
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
S u m m a r y
• Negotiation starts well before the Term Sheet (or even the initial investment Pitch)
• Negotiate “Interests” and not “Positions”
• Two Key “Interests” in any negotiation– People and Desired Outcomes : Remember to separate the two !
• Relationships - Its NOT about who you know; Its about who knows you: – Start the relationship well before you need money
– Start setting realistic expectations from the get-go
• Communicate in the investor’s language and communicate often
• Listen actively, Empathize, Establish rapport and then Influence
An Encounter .....vs..... Marriage
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
• Strategic Negotiation, Dietmeyer & Kaplan
• Getting to Yes, Fisher & Ury
R e f e r e n c e s
C o n t a c t I n f o r m a t i o n
Probal Lala, President and CEO About Communications(W) 416.643.3860www.aboutez.com
Probal.lala@aboutez.com
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
CONTACT
top related