Fundraising · Term sheet

What are the best practices for a startup running an auction with multiple VC termsheets?

rakesh balakrishnan Lead Quality Assurance Engineer | actively seeking new Test Lead position

November 21st, 2016

There are a lot of pros and cons related to the startup having an auction. If you are a fundable startup and going to an auction what would be the best practices with multiple VC termsheets? Is this even a smart idea? Keeping in mind that when going to an auction you can end up being funded by a VC who is not an exact fit to your company and / or to your business plan. What are your opinions about this subject?

Mindy Barker Passionate executive working with entrepreneurial companies to improve profitability, value and cash flow

November 21st, 2016

You are starting a "marriage" with a VC - this does not sound like the best approach to me. And remember you are a beautiful bride until the term sheet is signed and then due diligence begins and the dynamics change and your blemishes will be highlighted. It does not hurt to have respectful discussions with several VCs. Treat your new partner how you would want to be treated.

Ian Shearer Executive Chairman at Parakeetplay

November 22nd, 2016

I agree with Mindy. I have just watched a company in my city make a complete mess of this by thinking that going out holding an auction was the best way to get a good price. It has been a disaster because all the local VCs talk to each other and their interest drops when they realise that the company is being hawked around town.
It may be different in other cities but my advice is to approach appropriate VCs and when you get interest from one, work with them to get the best price. I sometimes even say to the VC "look, you are the VC I want so I am not holding an auction but I really want you to pay a decent price and I will work with you to get that price" Usually then a VC will tell you their issues and how you might improve their price.