Legal Negotiations are a lot like breakfast. Both set you up for what’s to come whether it’s the day ahead or future investments. Some weetbix or bacon and eggs to get you going, and you’re better able to meet the day’s challenges (and fight against Hanger). But, if you only knock back some of yesterday’s cold coffee, it’ll be an uphill battle.
Likewise, in legal negotiations, the start matters. A lot. Below, we set out why it is critical that you begin your negotiations on the right foot and have the appropriate legal documents on hand.
“A Good Starting Point Indeed” … said the investor
The Australian Private Equity & Venture Capital Association Limited (AVCAL) is an industry body that was created by and mainly consists of investors. A few of its members drafted and made publicly available a suite of legal documents with the stated purpose of reducing legal costs for founders. The documents included the message, “Please feel free to use these documents, but please do so responsibly only after retaining your own legal counsel. Don’t use these documents blindly. Think of them as a good starting point that can save you some time and money.”
After the release of these documents, Startup Daily analysed the provisions and sub-provisions of the AVCAL open source document suite in detail to surpass 7,500 words in their article Are the deal terms that Australian VCs ask for actually ‘unfair’ to founders? Their answer? Are they unfair to founders? Well, more or less, yes.
She/He who has the Pen has the Power
If you start legal negotiations with documents that are heavily investor friendly, you’ll most likely spend your time running uphill during the negotiation process. It’s like starting the day with yesterday’s cold coffee.
If you have some bargaining power to exercise and engage lawyers to assist you, then you should have them “markup” the document, which can sometimes ADD to your costs and time during the negotiations. Ouch!
Have that Conversation
If your prospective investors throw you the AVCAL suite as the starting point, then you should flag with them that an organisation with a strong investor focus drafted the documents. If you can offer an alternative document suite from your drawer as the suggested starting point for your investors, it highlights to the investor that where you start negotiations is important.
After the Conversation
Which documents you both ultimately choose to work with can reflect relative bargaining power and other factors in the negotiation. Nevertheless, you’ll do well to remember that the starting point counts. Much like breakfast does in the morning.
Questions? Get in touch on 1300 544 755.