A few weeks back I met with an entrepreneur who had recently closed a round with a large VC. We got to talking about what it was like to work with that VC, and he mentioned that it was a little strange because the VC was pushing for these really bizarre terms. After he described them to me, I too agreed they were bizarre, but then I said I’m pretty sure I knew why he was pushing for them, which was I bet he had gotten burned on them in the past. The entrepreneur’s eyes lit up and said that was right! Eventually, the VC admitted this to him, talked it through, and they came to agreement on terms.
I can sympathize with that VC. Since 2006 when I started investing in startups, I’ve gotten caught by a lot of unexpected traps and rookie mistakes. These have definitely driven my current thinking on how I like to pick startups and their teams, finance them, and what terms are important to me. I would definitely admit that this was the most expensive education in any subject I’ve ever learned. Where else can you piss away 10s, if not 100s of thousands of dollars on situations that you may have avoided through better experience or forethought? Or maybe lady luck just decided to slap you down this time out of nowhere?
It was one of the reasons why I wrote this post a few years back: More Reasons Not to Invest in Notes. In the notes that I’ve done, I’ve seen many unexpected things happen. And this is why my boilerplate note has grown to include many things beyond the vanilla convertible note that someone might use.
But then, there are investors I’ve met out there who have never had anything bad or weird happen to them. This fact still amazes me that there are those out there like this. Still, it is my belief that the more you invest, the more likely something bad will eventually happen. You can’t avoid everything bad that can happen to you; you can only do so much to protect yourself.
In our attempts to protect ourselves, the entrepreneurs we meet often suffer from our past. We argue for certain agreements and terms, some of which seem downright strange and we can be pretty adamant about those terms. We may even get emotional about them and refuse to back down on them as negotiable items.
Sorry about that. The more we invest, the more we are scarred. The best thing you can do is to be like a good therapist; sit and listen to us rant and rave. Nod with sympathy in your eyes. Let us know you understand. Pat us on the back. And when we calm down, we may actually give…or not. Like traditional therapy, some things can be cured and others…well…probably never…