When you meet with VC, you need to explain that your business will break current business and create new business. If you succeed this explanation, you need to discuss the conditions for investment using the Term Sheet.
If you cannot understand the Term Sheet and only look at the price of shares or the amount they invest, your business will go to the wrong direction. I recommend that you need to think more about your Equity Strategy. The most important thing for your company is not money rather partner. If you can find good collaborators, you might get more. However, if you only look at the money, unless you have good luck you will need more money but you will have difficulty to collect the money comparing the circumstance before(first round).
The reason why I give you such alert is that VC will also join in the management of your company if you accept the money from VC and that your VC might hinder the second investment from other VC though the next financing is more important than the first one.
The Term Sheet is linked to the Investment Agreement. If you only look at the money but does not watch out the other Terms, you will lose your free discretion to mange your company.
Actually, the fact that you accept the money from others means that you have responsibility to others. Of course, once you accept it you cannot do whatever you want to do for your company.
Second, as the price of shares will be fixed it will be almost impossible or difficult to depreciate such price for the Second Round. It means that you need to find new VC which can invest added price to your company unless the first VC can invest for the Second Round.
As you see, you have to collaborate with the first VC for the long term until you get the Exit. Why not find an appropriate VC, that is to say, best partner for your company?
The best partner is not entity to give the best money to your company. Rather they know how to increase the value of your company and give advice and find other good business partners. They even connect your company to big listed companies.
In this sense, let’s give the value to them. In return for such value, you may find other solutions when you face the difficulties. Of course, you need to insert such clause to the Investment Agreement.
VC has a little bit strong position in Japan. However, by creating the stable Ecosystem of the venture we can enjoy more flexible survival. For example, rather than asking huge VCs for huge money, you may ask VCs for decent investment but for the good service.
It may be true that huge investment may relate to good service as VCs do not want to let your company to be corrupt. However, high valuation usually causes conflict between VCs and the founders when your business does not go smoothly.
In sum, it is one of solutions to find flexible VCs which may help your company by all means to survive from the hash and competitive world and to create new paradigm.
At the same time, it is also one of choice to let VCs appoint managers to your company if it turns out that you are not good manager so that you can concentrate on technology development, which allows the value of your company to increase.
In this article “Equity Finance1”, I only illustrate the concept of collaboration with VCs.