Entrepreneur-turned-VC Mark Suster recently blogged on Both Sides of the Table about the frustrations of negotiating a term sheet. His own personal horror story includes eight clause changes; law firm negotiators away on vacation; some serious doubts about the capability of his own lawyer. After 13 days of re-marking and re-editing, Suster and his team finally have a term sheet. “Now the hard part begins,” he says, referring to the inevitable process of completing definitive, long-form legal documents.
At one point, Suster spoke with his co-founder Brian Moran, who told Suster that when he was working in the 1990s for a large global real estate developer, his team had “signing parties” where every party involved flew to a single location and stayed together in a hotel until the deal was finished. Suster liked the sound of this, and pitched the idea of a signing party to his own team. Despite some reluctance among the lawyers, they all eventually acquiesced.
“We spent several hours in a room,” Suster writes. “We took several breaks for each side to discuss issues privately that were in contention. We made phone calls to others.
The VC predictably argued some version of, ‘In all of the 50 deals we’ve seen in our portfolio we’ve never seen this term approved.’” As a side note, Suster suggests never to take that last line seriously. “I have seen VCs hide behind this ‘we’ve never done it before’ line many times,” he writes.
According to Suster, it was a long day, but at the end of the meeting they had a final agreement. His lawyers drafted it within 48 hours and the team signed it within 72 hours.
“It’s not always easy to get the various parties of your deal to be in a room all together at one time,” Suster concludes. “But if you can make it happen I promise it’s a much faster way to get a deal done.”
Source: Both Sides of the Table