I am not in the deal business: I'm in the partnership business. This naturally means making an array of trade-offs in order to strike a balanced relationship with my partners, seldom getting everything I want but generally arriving at a point that feels good to both parties. My partners in this case are the companies in which we invest and to whom we provide capital, but more importantly energy, input and time. We have a very small set of immutable rules at IA Ventures, one of which is as follows: We will only invest in a company and become partners with founders who are as interested in working with us as we are with them. This transcends money: this gets down deep to the essence of what a partnership really means. It is, by its nature, a fair exchange of value where we exchange money, commitment and real efforts for ownership, passion and a maniacal focus on building an awesome company. When there is a match, it is a fun and exciting shared journey. When there isn't, it is often a miserable and contentious path that is simply no fun at all. Generally this lack of fun arises from the perception of a win/lose between founder and investor-partner, creating a layer of suspicion and cynicism that permeates the relationship and colors all meaningful interaction. It is precisely these kinds of situations that we seek to avoid at all costs.
Short-term economics are clearly relevant for both founder and investor-partner. Parties can either approach this dialogue from the vantage point of "I want the highest (lowest) price possible," or "I want to strike a deal that feels good with the partners that feel the best to me." When the parties are seeking to optimize for price, the dialogue is generally unfriendly and the more salient points of partnership (how we're going to work together, what are the ways in which you, investor, can best help the company today?) are given the short shrift. This also extends to the terms of the investment, where either side can choose to be predatory and hostile rather than striking a fair deal that works well for all. While a party might feel good in the moment by optimizing for short-term economics, often such behavior can backfire when problems arise. Bad feelings may well be re-visited during times of duress, causing previously cocky and self-assured founders to become agitated and frustrated in the face of terms that seem unfair but only represent a balancing of accounts later in the company's life. And when there is only one buyer (as is often the case in difficult situations), bad things can happen which ultimately burn the relationship on both sides.
My general advice to investors and founders alike is to focus on the big picture and not to get mired in the small stuff. From the founder perspective, get the right investors. Build a strong, trusting relationship. Agree on terms that are fair, which depending upon the investor(s) may or not be the highest price. And by all means, treat your partners with respect and treat them as you wish to be treated yourself. In my experience really good, engaged investors are great people and worthy of respect, yet I've seen cases where cynical and tone-deaf entrepreneurs treat investors badly and are only laying the foundation for ugliness down the line (and I've certainly witnessed the converse as well). My question is simple: why? Building a company, like life, is a marathon and not a sprint. Most founders need a bunch of help to make their vision become reality. Leverage the people with whom your interests are aligned, and if there is little leverage to be had then lesson learned: pick better investors next time. But if you did choose well and your investors work hard for the company, rock on. Because great investors and a strong support system can make the difference between a modest success and a company that has a chance to change the world. And isn't this what most of us really want, anyway?