Venture Capital - What Happens After The Due Diligence Process
If the venture capitalists are interested in your company after
completing their due diligence, they will offer a binding term sheet.
It will reflect the draft term sheet that has already been agreed to
but this one will be a legal contractual agreement. Then the real
negotiations start.
There are different types of financing to consider: debt, equity, and mezzanine.
Debt financing is the most objective and is therefore the easiest to
negotiate. If you have the assets to support the debt and the income to
support the interest payments, the negotiation period will be very
short.
Equity financing negotiating is more complicated and revolves around
agreeing on valuation and percentage ownership. Discussions usually
requires several days.
Mezzanine financing involves a mix of equity, debt, convertible
debentures and preferred shares. Negotiating the technical aspects of
each so that an agreement can be reached between the investor and your
company can be time consuming.
Another dictating factor is the number and variety of financing offers
that you receive. It is the intermediary’s role to help you bring more
than one offer to the table and assist you in evaluating and
negotiating which one is best suited to your company’s needs based on
their previous experience.
Venture capital term sheets are time limited. You have to quickly make
up your mind if you want to accept or reject the offer. The short time
period is in place to prevent you from using one term sheet to solicit
new offers from other venture capitalists.
Evan (www.evancarmichael.com)
is an entrepreneur and international speaker. At the age of 19, Evan
became an owner and Chief Operating Officer in Redasoft, a
biotechnology software company. The company quickly grew to over 300
organizations as clients, including NASA and Johnson & Johnson, in
30 countries. As a presenter, Evan has spoken on Modeling Masters
techniques to world leaders and entrepreneurs at APEC Forums in Mexico,
Brunei Darussalam, and Taiwan in addition to being a keynote speaker at
over 100 events in Canada. He also has a background in the venture
capital industry helping entrepreneurial companies raise between
$500,000 and $15 million to grow their businesses. Find out more at www.evancarmichael.com.
