
Ask HN: VC insisting on early redemption event term - thrwowawawaway
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patio11
There is a term of art in Silicon Valley called "market terms", which are
things which are sufficiently well-understood, precedented, and facially not-
screamingly-unfair that 2+ sophisticated adults could reasonably agree to them
in a business dealing.

The term your investor has asked for is not a market term in seed rounds in
Silicon Valley. I am understating for emphasis here. Seed stage investors
typically accept the risk of the company blowing up; that's why they get to
invest for cheap. There is no market term by which an investor gets to claw
back seed funding.

Whether this is relevant to you in Europe is tougher to say. After all, you
don't necessarily have the pick of every investor in the world to do business
with. But if you have the pick of at least one other investor, I'd strongly
consider going with another investor over accepting a deal with this term of
it.

 _walking away is almost not an option given we had such a hard time with our
fundraising_

Oof.

So you have something they want (equity in a company) and they have something
you need (cash money). If you don't want their investment on these terms (and
you don't), counterpropose something else. A first counterproposal is simply
"We like the deal outlined in the term sheet, but aren't amenable to these
targets. Strike them and we'll execute" and see where life takes you from
there.

If they push back hard, then you're back to the negotiating table. (Which you
shouldn't be, because you have a term sheet, but there are term sheets and
there are term sheets.) What's the valuation at which they're happy taking
risk commensurate with being a seed investor? If there is no valuation that
they'll make a seed investment in, they're not a seed investor, and regardless
of whether you think walking is an option or not you might have to consider
walking.

A danger with non-market terms is that every investor you ever deal with
forever is going to see that term and then either a) run out of the
conversation with you, because it suggests that you're either struggling or a
pushover or b) deal with you excessively aggressively, because you're either
struggling or a pushover.

Another danger with accepting this term is that you're going to be dealing
with this investor for the next 5 to 10 years of your life if everything goes
well. Does this sticking you with this portend a healthy, mutually beneficial,
cooperative relationship with this investor? I would suggest that it does not.
Do you want this investor at the table when you e.g. have to go back to
investors to organize a bridge round? When you need them to give a sliver back
to secure a later investment? Heck, do you even want them at the table
assuming you become an uncomplicated golden goose of a company, sure in the
knowledge that they will not strangle you in attempting to extract their
golden eggs?

