Angel Investment Journal – Angel Investing and Entrepreneur Blog

ACA Session – Negotiate Now or Pay Later

Posted in Resources by angel on the May 12th, 2008

Robert Robinson, founder of the Hawaii Angels, gave a session on negotiating at the recent ACA Summit.

The following are some brief notes from his session:

-Angels need to negotiate in the following areas-
Term sheet
Portfolio Governance
Follow on Financing

-Your negotiating strength is proportional to the value of your alternatives AND inversely proportional to the value of their alternatives.

-“Principles unite and numbers divide.” Don’t talk numbers in the early stages. Talk about the vision for the company over the next year and beyond or related topics. Once you start talking valuation you are in adversarial position from then going forward.

-Many times entrepreneurs get too concerned about getting too diluted. However, dilution is not the worst thing that can happen to entrepreneur. The most proximate cause of company death is running out of cash.

Dave Berkus on Boards at ACA

Posted in Resources by angel on the May 12th, 2008

I just returned from the Angel Capital Association Summit in San Diego. It was a great event and would highly recommend it to all angel investors. David Berkus who is widely known for his contributions to the Angel community as well as for his method of valuating companies – the “Berkus Method” gave a presentation on boards that was excellent.

Some quick notes from his talk:

-Every board needs an audit committee and compensation committee. Other committees could also be beneficial, but it is on a case by case basis.

-A general guideline of board compensation is 1 percent that is vested over 2-4 years.

-The boards of small companies should focus the spending where there is a demand pull. Don’t go in direction of using ‘cost push’ to determine spending. This is where the CEO says where he thinks costs should go. Instead, find where demand is pulling on company and go in that direction. Try to “expand the runway” in the direction of this “demand pull”.

You may want to check out his book “Extending the Runway” which discusses Boards (all of his proceeds go to the Boys Scouts of America). I spoke with Frank Peters after the session. He said he and Dave may do a show expanding on this presentation which will get into some war stories about being on boards.