msuster's comments

This is mark (the author).

I totally get why i would be seen as biased. I have given this advice hundreds of times in small sessions verbally and I REALLY have no interest in driving my point of view for me. I do 2 deals a year. It barely matters to me personally.

Do me a favor. Ask around to experienced entrepreneurs who have done 3-5 companies and stretching back to at least the mid to late 90s. I promise you you'll hear similar views to mine. Also, ask some very smart lawyers for a balanced view. I think you'll mostly hear the same.

re: gate keeper protecting the establishment. I know you don't know me but truthfully it is nothing of the sort. I think in simple life lessons. When you matter more to a small set of people they have more interest in helping you in tough times. If you never make mistakes or struggle then the argument of not having strong leads makes sense. It's just that this is the edge case.

Good luck.

"massive boondoggle" because you were there and know what my business there was? I was there meeting tech professionals, VCs, government officials and investors in VC funds.

I went to China to meet with tech firms, VCs and government officials. And to learn about the funding environment for Chinese firms investing in VCs. I know that Dave also met with LPs (who invest in in VC funds). But thanks for making the blind assumption about my trip and motives. Appreciate it.

I read your response, David. Frankly, I think you do many entrepreneurs an injustice in assuming that I'm talking about VC funded entrepreneurs only. At my talk at University of Chicago I repeated advice I give every time I speak "90+% of you should never raise VC. It's not right for you. Better that you raise smaller amounts of money and keep control of your business."

And many small startups have a much worse cash situation than those fueled by VC but your post fails to consider that. Many of them have loans, sibling / parent money and the like. It's actually much harder on them.

Or how about physical or retail businesses? I know many non-tech entrepreneurs who have gone through personal bankruptcy due to this. Including my own parents. Which led them to get divorced.

Bitch, you don't know me. Don't assume you do.

Not true. The full ratchet is implicit in the deal. If the deal said $8m cap and next investor invests at $4m then the deal gets done as $4m and doesn't impact the next investor. It comes out of founders' equity. It is the "equivalent" of a full ratchet but disappears after the deal is done.

I didn't miss that point. I agree with what you say. But - there are very few companies that could pull this off so my post was to point this out to people.

It may be obvious to you but all the chatter this week has been about getting big rounds of VC before M&A. My thesis was that this will backfire for 99% of companies. In Instagram's case it worked like a charm. Precisely because they were so valuable to Facebook.

So, yes, I think Instagram "pulled an Instragram" if I could be so recursive.

that is EXACTLY what happened in the situation I described. We hadn't yet signed the term sheet. So I told the CEO that I would understand if he went with the other firm. But that I personally couldn't be involved with the deal for reasons I described. Until a CEO has signed the term sheet (or gives you an email saying they will) I assume they are still negotiating with others.

My term sheet wasn't signed so I would have understood if the entrepreneur chose the other partner.

In the case of the new vc / old vc example that wasn't me ... yes, there was a 'no shop' clause. but ...

1. those are mostly unenforceable (is a vc going to sue an entrepreneur over no shop? not likely) 2. if the team really wants to get around it they can just run out the clock. most no shops are 45-60 days.

In the end, a term sheet is really just an expression of honor and reputation.

term sheets have "no shop" clauses which prohibit you from talking with other investors. But they're pretty unenforceable so it happens anyways.

I definitely have never argued that all VCs are good or even that good VCs always act appropriately. That's for sure.

I think the key is knowing the parties with whom you're dealing and knowing their past behavior. I advocate reference checking portfolio companies that failed: see http://www.bothsidesofthetable.com/2010/02/08/how-do-you-ref...

I think the "new VC" acted terribly.

Thank you. I wish more people saw it that way. I always believe in negotiating / seeking competitive deals. But once you agree a deal with people you honor it.

Nope. I was an entrepreneur for 10 years first. I always employed this mentality. Reputation matters.

Fair comment. I could see why it might come across that way.

The impression I meant to leave was that I risked losing out on the deal all together because the CEO could have simply done the deal with the other investor.

I would rather that have happened than to screw over the VC who convinced me to look at the deal in the first place.

I understand that view. And I've certainly been burned. Still, if you're dealing with a VC there is much you can do to reference check them before signing a term sheet. This involves talking with portfolio companies that DID NOT succeed.

I spoke about it here: http://www.bothsidesofthetable.com/2010/02/08/how-do-you-ref...

Ok. Fair enough. Thanks for expanding. FWIW, in the busy execs hate lunches post - I was really just trying to offer honest advice to young entrepreneurs. I do lunches all the time. But I also get requests from random people I don't know to do lunch or dinner. I thought it was worth educating some of these younger people about what common-sense etiquette is. I know you think it's obvious - but based on my sample data it isn't always.

And why is that, Michael? Which bits did you find objectionable? What would you prefer to hear? People negotiate. We can pretend they don't, but they do. For business people it's important to understand that.

But I'm all ears if you think I missed something.

As Woody Allen said, "80% of success is just showing up" but I didn't think that made a good line for a blog post ;-)

In 20 years of giving & receiving presentations I can tell you that this is actually the second most important advice I can give: if you can avoid handouts do so. (the most important is the importance of "the narrative" which I'm going to write about in the next week or two on http://www.bothsid.es).

It is your job to control the tempo & information in the meeting and handouts destroy that. I do sometimes give them after the meeting.

If you're not doing an overhead projector presentation then I agree that you need to give handouts. If a projector - there's no feedback that the other person could give you with paper in front of them that they couldn't with a handout unless it's detailed financial or other information (you could hand this out as you get to that place in the presentation).

I spent 8 years in the trenches. If you want to argue with my position I'm open to a discussion. But merely saying people who don't agree with you are "primadonnas" is a bit superficial.