9.2 Take a Good Look at the Deal
After all your preparations and negotiating, the deal is finally starting
to take shape. But is it still in line with your needs? Maybe the investor
thinks you have overestimated your needs and has lowered the amount
of the investment. Maybe the type of investment instrument has changed.
Maybe the investor's involvement in your company will be more hands-on
than you anticipated.
The decision you are about to make will have a significant effect on
your business and personal future. As the deal comes closer to reality,
take some time to collect your thoughts and compare your initial proposal
with the way things are actually turning out. At this point too, seek
out the advice and opinions of your business advisors, key members of
your management team, and your board of directors.
Take a good look at the deal from these standpoints:
Your Company's Future
It's time to make a hard decision based on what you believe is best for you
and the company, both now and in the future. So step back and think of the big
picture.
- Are there any reasonable alternatives? If not, what position will
your company be in if you don't go ahead with your plans?
- Can your company afford the management team under present circumstances?
- Will the company continue to be viable without this investment?
- Are you prepared to give up a greater share of the business in order to
close this deal?
- On the other hand, are you giving up so much to make a deal that
you're risking your company's survival?
Financial Needs and Goals
Consider again whether this deal is a good one for the financial health
of your business.
- How will the deal affect your cash flow? Will your cash flow meet
your current needs under the new arrangements with the investor?
- Are the proposed changes too restrictive from an equity standpoint?
Will you be able to obtain additional equity financing in future without
jeopardizing this agreement?
- Can you still meet your goals?
Trust and Chemistry
Trust and chemistry are the key elements of this process. You and the
investor may be partners for a long time, so make sure the relationship
begins properly. If it comes to light that you haven't provided full disclosure,
or if you try to introduce new information that effectively blindsides
the investor, you run the risk of destroying your credibility and the
trust you have established. If the investor loses faith in you, the deal
will not close.
Recruit a Devil's Advocate
As you've seen in previous Steps, it takes time and effort to
prepare for and work out a deal with an investor. When you've
put so much hard work and valuable time into the process, it's
natural to just want the deal to get done. As you review the terms
of a potential agreement, therefore, it's a good idea to recruit
someone to act as the devil's advocate. This person's role will
be to question you and challenge your assumptions.
Provide your challenger with the points and questions we've included
on this page. Set aside an hour or so for the two of you to go
through the items. Ask the devil's advocate to keep an eye out
for any points about which you seem hesitant or uncertain, and
to note these down for you.
When you've gone through all the items, return to the challenger's
notes and dig more deeply into the areas of concern. Do these
represent aspects of the deal that make you uncomfortable? Are
there good reasons for you to have doubts over these points? Do
you need more discussions or negotiations about these areas?
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When to Walk Away
If you and the investor find yourselves in real conflict over
terms, it may be better to walk away than try to resolve it.
Don't talk yourself into a bad deal just because you've worked
hard to arrive at an agreement. If you feel really uncomfortable,
it's probably an indication that you're subconsciously aware
of issues that could give rise to serious problems in future.
Keep in mind that the purpose of finding funding was always
to make your company better and stronger. If the deal you've
reached doesn't do that, it's not the right one for you.
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