At Launchpad, we invest in dozens of companies every year. In the past, we frequently faced situations where we put a lot of work into diligence with a company and suddenly found out we were miles apart on deal term expectations and couldn't close the gap. This is a waste of time for all involved, and is the kind of frustration that leads to “deal fatigue” for investors trying to build a portfolio of investments. It can also lead to bad feelings and an increasing sense of mistrust between investors and entrepreneurs.
Having A Summary of Your Preferred Deal Terms Can Save You A Ton of Heartache
A good way to avoid this issue is try to be more explicit about what your deal term expectations are early on in your discussions with the entrepreneur. Once you have tried to do that off the cuff a couple times, you quickly see the value of having a written outline of your expectations. At Launchpad, we have been using a written outline for a while and we found it has helped a great deal. As the leaders of a network of investors, we see ourselves as managing a finite “human capital budget,” and so anything that avoids wasted effort allows us to redirect those valuable cycles to other more important tasks.
You can download an example deal terms expectation memo that is based on the one we use. Your priorities and preferred deal terms might be totally different, but this template should allow you to get started.
>>> DOWNLOAD DEAL TERMS EXPECTATIONS SUMMARY MEMO
To learn more about early stage due diligence, check out this series of articles: Due Diligence in Early Stage Companies [Series], or download this free eBook: An Investor's Guide to Due Diligence.
For more on deal terms, please visit Understanding Equity Deal Terms [Series] or download our free eBook: Understanding Early-Stage Deal Terms.
All content can also be found in hard copy desk references for purchase at Amazon.