Discover more from The Family's Newsletter
Wait until the money is in the bank account.
“Wait until the money is in the bank account.”
I’ve heard this sentence so many times. But when you have a binding term sheet, a signed agreement with a reputable investor, what can go wrong?
Here’s the trick - life loves surprises.
At The Family, the experience of making so many deals has taught us to be, in parallel, optimistic and pessimistic.
Optimistic in the long-term: it makes you achieve the impossible, it keeps the fire burning among the team. But behaving pessimistically in the short term gives you a good framework. It teaches founders the discipline to prepare for the worst, to be “in control”.
During COVID, a lot of investors wanted to renegotiate deals.
The situation changed, and so did they. Consequently, other investors got into the virtue-signaling game, saying that they would never change valuations and terms.
In China, people say that agreements are alive, that agreements have good days and bad days. Following that mindset, I know a deal is versatile, it’s never done until it is done.
So as an entrepreneur, don’t get lost in frustration, don’t be a child. Strive to understand the other side with fairness. In 8 years I’ve never seen a term sheet break for the wrong reasons. A change of mind can be a fairly good decision. After all, freedom is everything and our will can change.
Why waste time optimizing for a marginal increase of valuation?
Time is the biggest risk here. I’ve seen so many deals fail because entrepreneurs get greedy or just plain scared about making a bad deal based on what others are saying.
They are comparing their inside (their true valuation and terms) to the outside of others (what the press tells them about terms and conditions). That’s like benchmarking your life based on what you see on Instagram, it doesn’t provide any happiness.
Adaptability also applies to the legal framework.
Regarding shareholder agreements, partnerships, and that sort of thing, it’s important to both stay flexible and understand the context. You don’t have to accept something that’s unfair, but sometimes it’s important to concede something to the other side, too.
We are often harsh when it comes to investors misbehaving, but we will also always be harsh with entrepreneurs. I’m not here to tell you what you want to hear, but what you need to win.
Because for entrepreneurs, winning is more important than being right.
To finish 2020 on a high note, one Director from The Family sends you a startup lesson each day all the way through Xmas!
Applications for The Family's next remote batch starting in January are now open. You're welcome to apply to our 6-week intense program, made for entrepreneurs willing to grow their startup in the best conditions: getting smart advice, accessing top operators and fundraising with the best investors.