We had much to be happy about. After all, the term sheet was from one of the blue-chip VC firms with two celebrity partners. Since we had passed ‘their’ test, the outcome seemed to validate our endeavor that extra bit more.
Alas the terms. We were looking for $4-5 million and the offer was at the midway mark. This was the high order bit damper. The rest of the terms (liquidation preferences, tag-along rights, etc.) were bad but they were the ‘normal’ Silicon Valley bad, i.e. everyone except the super-hot startups had no choice but to accept them.
Fundraising, my friend and mentor Anurag had explained earlier, had to be run with the quantitative discipline of a sales funnel. If a lead turned cold, a prospect MUST be convert into a lead.. if a warm lead had cooled off, someone else HAD to be turned into warm and so on.
A sales manager/director couldn’t miss his quarterly number and the startup CEO couldn’t miss her fundraising target. This is where the similarity ends. In most cases, the startup CEO would end up choosing one from the plethora (or paucity) of term sheet options.
Whether we failed in our quantitative discipline or the market disgreed with our optimism (circa 2007 Q1?) we had just that ONE term sheet. No warm waiting-on-the-wings VCs whom we could tempt.
It was take-it-or-leave-it.
On the ‘leave’ side there were a few angels ready to partially bankroll us (partial meaning 6-8 months runway).
One of my partner’s advisors struck a cautionary note “It’s not a great deal but there are many startups that refused their first Series A term sheet and went on to NOT raise any money in future.”
Anurag was more blunt. “If you don’t believe in your idea, take the money,” he said.
He didn’t need to elaborate. I knew what he meant.
If we truly believed in our company, we would have had the conviction that a few (or several) months later we WOULD find other investors at our terms.
It didn’t help that we had run out of money from the seed round.