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johanna's avatar

Venture Capitalist firm wants options? Bad or good?

Asked by johanna (895points) October 5th, 2009

A VC want a bunch of options to be active in the investment – non negotiable. The suggested deal is that they get a bunch of options, guarantee a part of the investment round (say 25%) and then collaborate with us to raise the rest. Their active involvement will be “long term” with a suggested horizon of 5 years (how is that put in the term sheet?) and they will take the major part of the work load raising money, from their own fund and their partners, down the road. Isn’t is reasonable to argue that they should take their profit from their investment and shove the options? Isn’t their suggestion the same as charging a consultancy fee for managing their investment which I understand is bullshit? We would prefer them to not be active and just give us the money.
Anyone with experience? Tips?

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4 Answers

TheIncomparableBenziniBrothers's avatar

They’re going to try to get as much as they can. Don’t take it personally. That’s just business. It’s your job to push back and make an argument why they don’t need the options. In other words, it’s a typical negotiation. Just don’t get steamrolled or decide that it’s over before the ink is dry. You have as much power as they do.

DominicX's avatar

Man, I wish I could get my dad to come on here. He’s a venture capitalist and he talks about this stuff all the time. I don’t know anything about the trade, however; I’m not really that interested in it. :)

But that would just be too embarrassing; it’s bad enough that he came in to speak to my economics class…

johanna's avatar

@DominicX Please ask him!

charhalCDW's avatar

This is one of those times where, I guess, you would want a very specialized kind of lawyer on your side.

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