Good deals

I’ve noticed two schools of thought in negotiating startup investment deals.

The first, which comes much more naturally to me, is to agree to a deal face-to-face and all the major points and then to follow up with a legal process where there should be ‘no surprises’. At BGV we go even further and are deliberately very open about our terms so that teams can decide even before they meet us whether we’re right for them. The best tech investors I’ve come across work this way and spend their time concentrating on how best to help startups rather than how best to structure the deal.

The second way that it seems to happen is much more tactical and, in some cases, adversarial. If I was to be harsh I would say it was characterised by investors ‘trying it on’. When the email comes through with the terms there are some ‘extras’ or it turns out that they’d like special terms over other investors they hadn’t mentioned before. It then goes round and round for a while, distracting the team from making progress and making founders wonder whether they’re going to have to argue everything this way in the future.

You can probably tell that I’m not a fan of the second process. As far as I’m concerned, if you find yourself negotiating tactically, you’ve both lost. Unless a startup and its investors are on the same side from day one your chances of success go down rapidly.

Despite the good growth in the London startup scene, it still hasn’t reached critical mass and if as a startup you want to do a deal you probably won’t have a huge number of options. In the long run though I think it’s better for the startup world if investors err on the side of generosity. Of course there are limits — crazy valuations can be just as damaging as dodgy terms and institutional investors have a duty to protect their limited partners’ cash. But there’s no doubt that the power balance is shifting towards founders and personally I think that’s a very good thing.
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The trouble with one ring to rule them all

Ah, Startup Britain, that was a fun week. I don’t think it went exactly according to plan. My take on why the launch went so badly wrong is that there’s no such thing as a single startup community in the UK. There are hundreds of smaller loosely joined communities with their own subcultures and attitudes to themselves and each other and that’s a wonderful thing. But it means that any attempt to create an overarching brand is going to annoy a lot of people.

Just to explain a little more, it’s pretty common for government to assume that the ‘entrepreneurial’ community is the important one. But actually the most talented people don’t go to the bigger (more mainstream) events because they attract some fairly awful people. In London they can be described as the ‘social media experts’. The talented people who are doing the interesting work, wouldn’t be seen dead there. Take things like Dorkbot — there’s not a sniff of startup about it. If things get too ‘cool’ the dorks run a mile and they rarely speak to journalists. A friend told me last night about a ‘proper inventor’ he’s working with who blew the roof off his garage when experimenting with changing the coolant in a gadget he’s developed that could just change the lives of millions of people. He’s unlikely to want to be part of a national campaign or even a startup — he just enjoys tinkering.

I think this is why there’s been such a negative reaction to Startup Britain. A lot of people don’t identify themselves as startups. A lot of people in these communities aren’t that British. And there are thousands of people doing and making interesting things who just don’t want any profile. They want to invent things. I’m not anti Startup Britain, I guess I’m just pointing out why I think it created a reflex response from many of the people who it wanted to involve. It’s the problem with anything that tries to be ‘one ring to rule them all’ and one I’ve seen in other domains — Make Poverty History springs to mind.

My view is the organisers would be best focusing on asking what people want and then going away and developing discrete offers for people based on that. A sort of lean startup approach to creating an industry body I guess. I get the sense from their tweets later in the week that might be what they’re doing. Some of those should be actual offers for startups, others should be laser-like campaigns to get government to change things. The CBI and IoD are frankly useless when it comes to helping small companies so it should be easy to do better.

And the Startup Britain people shouldn’t overclaim about what they’re doing — which I think just through the way they attempted to launch they already have. They should read Matt Jones on how much gardening is required to make these things work and be a little more humble about their part.
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