I used to think negotiations were simple - just come in with a reasonable, middle of the way set of terms, treat the counter-party as a reasonable, benevolent entity, and everything will work out all right. I quickly discovered that while there are some people who work this way, for the most part if you adopt this approach people will eat you alive. You won't even know what hit you.
I'd use the "reasonable terms" principle with friends I worked with for some time, or with people who have an immensely strong reputation for being reasonable (YC, etc.) But if you met someone two weeks ago, and they bring up the concept of an emotional bond into what ought to be a commodity transaction, alarms would go off in my head. (Note that it's easier to talk about an emotional bond when you're on the better end of the deal).
Mark probably is one of the very few people who work in a reasonable manner, but unfortunately for every person who works this way there are dozens of impostors who'll pretend they're reasonable and then eat you alive the moment you let your guard down.
So my advice would be the opposite. Unless you've worked with the person for a while, or have really strong evidence that they put insanely strong ethics before profits (and believe me, gut feeling is not strong evidence), or you've already indicated commitment, take the better deal.
I don't know Mark Suster, and maybe I'm completely misreading this, but the whole story seems rather self-serving to me. His "ethical dilemma" was whether to agree to a deal changing in such a way that he would be paying 50% more... and when he said that no, he wasn't going to pay 50% more, we're supposed to accept this as a great triumph for ethics?
I'm a great believer in behaving ethically, but this is not the sort of example I'd give.
Fair comment. I could see why it might come across that way.
The impression I meant to leave was that I risked losing out on the deal all together because the CEO could have simply done the deal with the other investor.
I would rather that have happened than to screw over the VC who convinced me to look at the deal in the first place.
I agree with what you did and it's what I would have done no question. But I have to say that loyalty and that type of behavior has definitely hurt me business wise over the years.
I wonder how much of that is "doing the right thing" vs. protecting one's reputation so you can continue to do deals. (And you clearly referred to protecting reputation ..)
If you are just interested in "doing the right thing" then the issue of protecting one's reputation wouldn't even come up in the discussion, right? (And nothing wrong with sounding "pollyannish"?)
I wouldn't have done what your friend did at the dance. Not because I'd be worried about reputation but because it would make me feel bad to do it. I wouldn't want it to happen to me (empathy). I can tell you have empathy just by the way you wrote the post. I'm wondering if you feel a need to cloak it in "reputation" and are you sure that's as big a motive as you make it out to be? As if it won't be manly or something.
Right, despite the example being a bit off I can see what you were trying to say.
It seems to me that this situation started when the company had a signed term sheet but still went around to VCs trying to interest them in investing. Is this normal? (I'm a bootstrapper, so I have no experience with these games.)
Completely agree. A simple rule of thumb is to treat everyone as guilty till proven innocent.
Proven innocent: close friends you'd trust with your children or your money, colleagues you've been through the crucible with (you know the measure of each other), YC and other small companies with a strong rep built over years and a simple management structure that isn't likely to be co-opted, etc.
Gut feeling = wishful thinking + rose-tinted glasses. Ignore it.
I disagree. I always trust people unless (or until) they've proven themselves untrustworthy. This may sound naive, but it's what works for my style of doing business, which hinges on mutual trust and almost over-the-top openness.
Here's what "guilty until proven innocent" misunderstands: without trust, the relationship is doomed regardless of whether the mistrust is justified or not. If I don't trust someone, I don't do business with them, period. And if I subscribed to your "simple rule," there would be practically nobody I could do business with.
I understand that view. And I've certainly been burned. Still, if you're dealing with a VC there is much you can do to reference check them before signing a term sheet. This involves talking with portfolio companies that DID NOT succeed.
My term sheet wasn't signed so I would have understood if the entrepreneur chose the other partner.
In the case of the new vc / old vc example that wasn't me ... yes, there was a 'no shop' clause. but ...
1. those are mostly unenforceable (is a vc going to sue an entrepreneur over no shop? not likely)
2. if the team really wants to get around it they can just run out the clock. most no shops are 45-60 days.
In the end, a term sheet is really just an expression of honor and reputation.
I'd use the "reasonable terms" principle with friends I worked with for some time, or with people who have an immensely strong reputation for being reasonable (YC, etc.) But if you met someone two weeks ago, and they bring up the concept of an emotional bond into what ought to be a commodity transaction, alarms would go off in my head. (Note that it's easier to talk about an emotional bond when you're on the better end of the deal).
Mark probably is one of the very few people who work in a reasonable manner, but unfortunately for every person who works this way there are dozens of impostors who'll pretend they're reasonable and then eat you alive the moment you let your guard down.
So my advice would be the opposite. Unless you've worked with the person for a while, or have really strong evidence that they put insanely strong ethics before profits (and believe me, gut feeling is not strong evidence), or you've already indicated commitment, take the better deal.