NEGOTIATIONS
and NEGOTIABLE
A discussion set up or intended to
produce a settlement or agreement. It is a process where each party involved in
negotiating tries to gain an advantage for themselves by the end of the process
is intended to compromise. During the negotiation, the investor will be
evaluating the negotiation skills, intelligence, and maturity of the
entrepreneur. The entrepreneur has precisely the same opportunity to size up
the investor. If the investors see anything that shakes their confidence or
trust, they probably will withdraw from the deal. Throughout the negotiations,
entrepreneurs need to bear mind that a successful negotiation is one in which
both sides believe they have made a fair deal.
The
Specific Issues Entrepreneurs Typically Face:
Co-sale provision this is a provision by which investors can ten der
their shares of their stock before an initial public offering. It protects the
first-round investors but can cause conflicts with investors in later rounds
and can inhibit an entrepreneur's ability to cash out. Ratchet antidilution protection this enables the lead investors to get free additional
common stock if subsequent shares are ever sold at a price lower than
originally paid. Washout financing this is a strategy of last resort, which wipes out all
previously issued stock when existing preferred shareholders will not commit
additional funds, thus diluting everyone .Forced
buyout under this provision,
if management does not find a buyer or cannot take the company public by a
certain date, then the investors can proceed to find a buyer at terms they
agree upon. Demand registration
rights here, investors can
demand at least one IPO in three to five years. In reality, such clauses are
hard to invoke since the market for new public stock issues, rather than the
terms of an agreement, ultimately governs the timing of such events.Piggyback registration rights these grant to the investors (and to the entrepreneur,
if he or she insists) rights to sell stock at the IPO. Since the underwriters
usually make this decision, the clause normally is not enforceable.Key-person insurance this requires the company to obtain life insurance on
key people. The named beneficiary of the insurance can be either the company or
the preferred shareholders.
Strategic Circumferenceit is
impossible to avoid strategic circumference. Completely, and while in some
cases scribing a strategic circumference is clearly intentional, others may be
unintended and fortunately, unexpected.Legal Circumferenceto avoid this
trap, entrepreneurs needs to have a fundamental precept. The devil is the
details.” It is very risky to use a lawyer who is not experienced and
competent. It also is helpful to keep a few options alive and to conserve cash.Attraction
to Status and Size it is best to avoid financial backers, whether debt or
equity, who have intimate knowledge and first-hand experience with the
technology, market place, and networks of expertise in the competitive arena.
