As venture capital flows continue to fluctuate, founders have to double down on the terms they agree on. While it can be tempting to overlook certain terms for the sake of closing a deal, founders should remember that nearly everything in a deal is negotiable.
A lot of entrepreneurs tend to focus only on the company’s valuation during talks, but often, other clauses in the contract can be far more impactful. The problem is that founders in the early stages of their business often don’t want to hire lawyers because of the cost involved, so they don’t have the legal knowledge or experience to negotiate the best possible deal.
But when you’re dealing with corporate venture capital (CVC), where firms have seasoned, dedicated legal teams, founders need to enter negotiations with an understanding of the legal dynamics. Doing so will enable them to be creative with their requests and implement more effective terms for both sides.
Drawing from my legal expertise as head of Wayra X, Telefónica’s investment vehicle and conversations with founders at the negotiation table, this is my advice for dealing with CVCs.
CVCs understand startup negotiations, too
Especially at the moment, you should feel that you can still challenge investors’ terms and express your preferences.
It may seem like you’re facing off against Goliath when trying to negotiate with CVCs, but the size and experience of their legal teams doesn’t give them an automatic advantage. Yes, CVCs are more used to preparing M&A and high-level contracts, but they should be able to change how they think when working with startups.
That means being able to work efficiently with a smaller team, write contracts in plain language and clearly break down requirements before anything is signed.
CVCs also shouldn’t go against the grain of the wider investment world; their size doesn’t allow them to operate outside of standard processes. So, if they present terms that would seem out of place in a traditional investor contract, founders can definitely call them out. Likewise, if a CVC wants to link the investment through a commercial deal, you can refuse, especially if there’s a possible conflict of interest.