A Case Study on Raising Capital
Jay Jung shares a case study that explains how his company helped a client with their fundraising process, and increased their valuation by 80% and doubled the capital raise.
One of our clients received a term sheet from a well-known VC in the industry. Our client was very excited as getting an investment from this firm was a strong sense of validation in the industry. However, the valuation was significantly lower than what they were hoping for.
The client only had one term sheet from this specific investor and was in dire need of a cash infusion to maintain its fast growth trajectory. Discussions with other investors were lagging and unclear if they were seriously interested.
This is a weak hand. In traditional negotiation terminology – what is your BATNA (Best Alternative To a Negotiated Agreement)? Ours was perhaps none existent, at best weak. But as Adam Grant advocates, “The science of the deal reveals that great negotiators refuse to believe in a win-lose world. They care about both results and relationships. They don’t declare victory until all parties win”
If you focus just on valuation, you are not going to gain much in this situation. We refuted their approach to valuation and explained why it was too low (unreasonable). The VC did not push back on our logic, but that doesn’t mean they accepted our higher valuation.
The key to gaining something in this type of discussion is identifying other issues that the investor is solving for. For investors, it is very rarely just about valuation.How does one identify these issues? Astute observations are required about what the investor says and what they do. Asking the right questions can reveal hidden information. It would be so much easier if everyone were open and transparent but that is seldom the case.
Through multiple calls, emails and in-person discussions with the investors, using thoughtfully prepared scripts, talking points and Q&A, the Company was able to glean insight into the investor’s needs and pain-points. Ultimately, the investment dollar amount was an important factor for this particular investor. In summary:
Key points include:
The process of fundraising
Read the full case study, Successfully Negotiating VC Termsheets, on the Embarc Advisors’ website.