BeyondVC

Nickels and dimes don't add up

I recently helped negotiate an employment contract for a new hire at a portfolio company.  It was clear from the very beginning that this new VP of Marketing was the right fit for the company and that the chemistry was there.  Both sides were excited about moving forward until we got to the employment contract.  In theory, we were in general agreement on salary range, bonus, etc. but what ended up scaring us was the fact that every issue, big or small, was negotiated to the nth degree.  There was no give from the other side and when issues such as vacation days were hotly contested, I got quite concerned.  In the end we passed on the candidate.  We reasoned that if he was this difficult during a negotiation for his contract that he would be just as difficult to work with.  I am not sure if he relied on his lawyer too much or if it was just his style, but either way negotiating every nickel and dime is not how to get deals done.  I felt that the basic element of trust was never established in the negotiation. 

My only words of wisdom for you is that In any negotiation, make sure you mark down your most important points and put them in a bucket.  Place the less important deal points in another bucket. Try to put yourself in the company's shoes to understand their major points as well.  I encourage you to ask for everything but at the end of the day be smart about what you really want-try to win on the big points but don't be afraid to give in on the small issues.  At the end of the day, nickels and dimes do not add up.

Fundraising is a distraction

I was speaking with a friend yesterday who recently signed a term sheet to raise a Series B round.  While he did not hit it out of the park with the valuation, it was a nice step-up none-the-less and would provide his company with the capital to move forward and stay ahead of its competition.  He and I both fully acknowledged that he could have pushed the valuation higher if he spent time with more than two venture firms, but we both agreed that the right thing to do was take the money and build the business.  This was an easy decision because fundraising is a distraction and valuation isn't everything.  When you are a lean and mean startup where you are just beginning to build your management team, every second you spend fundraising means more time that you are not working on your business.  I have seen too many entrepreneurs go on the VC tour, spend too much time on fundraising, and consequently miss important milestones.  In the end, the extensive fundraising process ends up backfiring since the VCs get concerned about lack of progress.  So the next time you are faced with the prospect of raising money painlessly and quickly, the slight discount you take on your valuation today will be well worth it in terms of what you can do to build your business and continue innovating your product or service.

What does Sarbanes-Oxley have to do with donuts?

I had lunch with a friend of mine yesterday who is an officer with a public technology company.  As we started discussing his business, one of the topics of conversation was Sarbanes Oxley.  His company just went through an expensive Sarbox audit to get into compliance and while his company passed with flying colors on most of the important issues, his company failed the audit.  Why?  Here is the short story.  One of his sales reps was hosting a client meeting and bought $15 worth of donuts.  The rep got a signature and approval from the CFO on the purchase.  Why did they fail?  The accountants said that the rep needed to get 2 signatures, one from the VP Sales and one from the CFO.  If the rep could buy $15 worth of donuts with only one signature, then think about what else he could buy.  That too me is quite inane and ridiculous.  There has to be some threshold, for example, on when 2 signatures are necessary for an expense report.  This is a perfect example of why Sarbox is expensive for public companies.  While I believe that Sarbox is a good thing and better and more stringent accounting is necessary, I also think that there is alot of waste ineherent in the regulations and that it needs to be reexamined.

This brings me to another point.  I had the opportunity to speak on a panel the other day hosted by Venture Scene New York.  The panel focused on exits or liquidity events and how VCs thought about them.  The clear trend that I am seeing is that companies really have second thoughts about going public these days due to the costs and requirements of Sarbox.  That obviously is not the sole reason many companies that can go public choose to be acquired but it is one of the top few.  In addition, it is no surprise that you see many public companies, particularly smaller ones, looking to go private as well.  Something has to be done to make Sarbox more relevant and less onerous, particularly for smaller companies.