- we have to think about this for a while
(that translates as 'no')
- we'll sign a letter of intent first
(that translates as 'you'll be on the hook, but we won't be')
- let our lawyers do the work, you concentrate on your company
(that translates as: You should let us write the contract, you just sign it)
For the best review of your chosen vc / group of vc's go and talk to people they've already invested in, especially the ones were there was a bad leave. Not to get a negative viewpoint, but to help you to avoid the same mistakes.
VC's are in it for the money, pure and simple. They are - with a very few exceptions - not your friend and should be seen as a very savvy business partner that could very well kill you to protect their investment, as they should.
Think of them as a powertool, used right it may get you fantastic returns, used wrongly you will end up hurting yourself.
Don't be afraid to make the rounds, even if you feel you have a good contact with one VC, look around some more and take your time. Not to play hard to get, but simply to learn the lay of the land. Pretend you're looking for a spouse, and take it that serious.
Oh, and do get your own lawyer, even if you can't afford it. Pay them from the investment you're going to get :)
They are - with a very few exceptions - not your friend and should be seen as a very savvy business partner that could very well kill you to protect their investment, as they should.
How often is it good business practice to have a pissed-off founder out there? You're opening yourself up to talent raids, exposure of company dirty laundry, negative press, and future problems for all your portfolio companies.
If the pissed off founder and the investor are at loggerheads then that is a very difficult situation, which comes up with some regularity, unfortunately.
How it is dealt with depends very much on the situation, I think that the recent 'moves' of Monty and some of the other people from MySQL are a good indication of what it can look like on the outside but I'm quite sure that the indoors conversations were quite different.
The reason why is exactly the one you quote above, to avoid exposure of company dirty laundry, negative press and future problems. But I'm quite sure that in spite of all that it has gotten a little bit harder for sun to do acquisitions and for Monty et. al. to get acquired again with a future startup (not that he needs to, he's got enough cash to call it quits anyway).
First: Lawyers are worth the money. Pay them. Just do it. Get a personal recommendation from someone, and they'll take you way more seriously. Like, call any lawyer you know, and ask him to refer you to a corporate lawyer. When you call and say, "Hi, is Mr. Corporate Lawyer there? Mr. Friend's Divorce Lawyer recommended you", you'll get much better service.
Other people you can ask for lawyer recommendations: Your accountant, your parents' accountant, your friends' accountant, your banker, your friend's banker, or even just the VP at your bank. Go into the bank and say, "Hi, I'm starting to get into business more - can I speak to the business banker or the vice president?" It might be scary, but they're hugely helpful. My bank's saved me a few thousand dollars over the last few years, and given me some referrals to business providers, attorneys, and an accountant. It can be scary, but talk to them.
Finally - big tip here - when you call your new business lawyer, ask his secretary if he drinks coffee or tea, and how he takes his coffee or tea. Then show up with a large version of exactly how he takes it to the meeting. Story of why this is all awesome:
*I had a deal going on to buy out a partner's share of a company. I had a prospective contract, it looked fine, but I wanted to look it over with a lawyer. For a few reasons, the deal had to close within a few days, so I needed a corporate lawyer in Boston on short notice. I called an immigration lawyer my friend used to get American citizenship, and asked him for a recommendation on a good contracts/business guy. Got two names - one guy was in the Caribbean or some such at the moment, the other was available to meet me the next day. His rates were $250/hour, if I recall correctly. I asked his secretary, and he took his coffee with cream and sugar. I met him on Boylston Street with a large cream/sugar from Starbucks.
He found a way to rewrite the contract to make the LLC repurchase the partner's share, meaning that'd be pretax money. He also tweaked a couple terms to limit my personal liability (these had no effect in the end as nothing went hostile, but was still good to do). Finally, he suggested that I change the payment delivery to make it sooner, next-day air payment of a check because it was a goodwill gesture, and I took his advice. He also explained all the clauses I didn't fully understand and taught me a good bit about contracts.
We went two hours, but he knocked his invoice down from $500 to $250 - due to some combination of liking me, a personal recommendation from another lawyer he respected, and a coffee. PAY THE LAWYERS! It's much cheaper than not paying them in the end. Just make sure you're personally recommended to them, and then be very cool to them. Most people treat lawyers as a necessary evil, but if you see them as on your side (they are, at least in business law) and treat them very cool, they'll treat you very cool in return.
It's more of a disconnect of languages between business-ese and face-value English. The problem is when one is mistaken for the other.
If you're trying to hire a hacker and he says, "I'm really interested in your project, but I'm not ready to make a commitment right now", he's indicating genuine interest in your startup, and you might be able to get a "yes" from him in 2 months if his personal situation changes. If a VC says this, it means "no".
A few more:
- we have to think about this for a while (that translates as 'no')
- we'll sign a letter of intent first (that translates as 'you'll be on the hook, but we won't be')
- let our lawyers do the work, you concentrate on your company (that translates as: You should let us write the contract, you just sign it)
For the best review of your chosen vc / group of vc's go and talk to people they've already invested in, especially the ones were there was a bad leave. Not to get a negative viewpoint, but to help you to avoid the same mistakes.
VC's are in it for the money, pure and simple. They are - with a very few exceptions - not your friend and should be seen as a very savvy business partner that could very well kill you to protect their investment, as they should.
Think of them as a powertool, used right it may get you fantastic returns, used wrongly you will end up hurting yourself.
Don't be afraid to make the rounds, even if you feel you have a good contact with one VC, look around some more and take your time. Not to play hard to get, but simply to learn the lay of the land. Pretend you're looking for a spouse, and take it that serious.
Oh, and do get your own lawyer, even if you can't afford it. Pay them from the investment you're going to get :)