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Timing squeeze on raising a VC round

My company is in a timing squeeze and I'd love to get input from the group on it. We are in the midst of raising a round of capital in Silicon Valley. We got a term sheet from our "#2" target fund. They are offering us more $ than we requested (although not forcing us to take it) but at a somewhat lower valuation than we'd like. The valuation doesn't bother me so much, but they are our #2 choice b/c we have direct experience with our #1 choice and would prefer working with a known entity. However, the #1 choice doesn't have us slated to present at their partner meeting until 2 weeks from now and the term sheet we have in hand expires at the end of this week.

So, suggestions? Do we take the bird in the hand? Should we try to negotiate a longer period to decide with #2, knowing that they would figure out that we're shopping the deal from our end? Do we bail on #2 and continue our forward momentum with #1? Any strategies for pushing #1 into meeting with us earlier to make a decision, even without a formal partners meeting on their end? Any suggestions or insight would be appreciated.

Answers

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

I would let your first choice know that you have another offer and that you need to act quickly. Then let number 2 know that there is competition so you can get them to increase their valuation. Competition is good!!

Steve Klei
Title: CFO
Company: Jigsaw/Salesforce
(CFO, Jigsaw/Salesforce) |

Very exciting!

My preference is to work with investors that I know, trust and can add value at the Board level and connections to customers, executives, other companies etc. - even at a lower valuation. They should also be able to continue funding. That might be your #1. What you didn't say is whether you have an idea of the valuation from #1, how much of a "rubber stamp" the partner meeting will be, diligence requests and process - all of which might influence the course of action.

Unless there is some unknown factor to me, I think it is desirable to indicate there is interest from others which should at a minimum keep the process moving briskly and has the best chance of increasing valuation. Valuations are emotional no matter what anyone says. I also would indicate to the #1 that they are the #1 and you want them, however you need to understand their process, likely valuation, likelihood of success at partner meeting and diligence/documentation requests, process and timeline.

I would be happy to talk directly on this to be a sounding board - this is a big decision and important process and the number of subtleties cannot be adequately explored in a text exchange. My email is skleiatcomcast [dot] net and if you email me with your cell I will give you a call to discuss.

Steve

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