The top 5 tips for closing a Series A financing with a venture capitalist
Date: Sept 7, 2004
It's been almost 2 months since my last entry. Funny what happens when you fall off the blogging band wagon. Over the course of this week, let me try to catch my reading public up on events that I have omitted. First, Judy's Book successfully raised 2.5 MM with Ignition Partners and Ackerley Partners as investors. The deal itself went very smoothly. Between my last blog entry and Friday, July 23 I negotiated a term sheet with John Ludwig. I've known John for about 3 years and yet had never done a deal with him. In retrospect, he was a gentleman and a scholar during the process. The term sheet negotation was relatively painless: Ignition wanted to put more money to work and wanted to own more of the company. We ended up deciding to take more money than we had originally set out to raise -- not necessarily a bad thing for the business. And I managed to communicate the issues I had around control and emotional dilution to John and Rich Tong, and to their credit they listened and responded graciously and prudently. Once we had a signed term sheet, it was off to the races to close the financing round. Ignition's attorney was Steve Yentzer of Perkins Coie and Judy's Book attorney was David Wickwire of Gray Cary. If I had been writing my blog during that week, I'm sure that I would have had a posted a blog entitled top 5 tips for closing a Series A financing with a venture capitalist....
1) Get everyone to agree to a timeline, especially the venture partner and investor council. Send an email around and manage everyone to that timeline
2) Don't let the attorneys run the deal. There's a healthy balance that you need to strike in managing your attorney as well as investor council. On the one hand, you want to keep your eye on the closing of the financing and keep everyone moving forward expediently. On the other hand, you don't want to annoy or offend the attorneys -- they can make your life tough.
3) Stay in close communication with the lead vc partner -- in this case, I tried to talk with John Ludwig every day just to make sure he wasn't getting frustrated with the process.
4) Know when to give and when to hold-- in every deal I've done, you inevitably have to give on points that seem important but in retrospect aren't. If there's an easy point to give on -- do so. It'll build credibility and flexibility (hopefully)
5) Get it done -- the most important thing to remember is the deal isn't done till the money is in the bank. In the case of the Judy's Book financing, I kept saying to my team that the biggest risk I saw to the financing was the unforeseen world event -- another Sept 11 if you will. If that had happened while I was trying to close, inevitably the entire deal is at risk...so it's important to keep one's eye on getting to the finish line.
Tomorrow I'll write a post on what happened post financing.