“Things are worth what people pay for them.”

– Head of M&A at a Fortune 500 Company

Summary: You need strong alternatives to hack a term sheet. Create alternatives with focus: pitch and negotiate with all your prospective investors at once. Focus compounds scarcity and social proof, which closes deals. Focus also yields a quick yes or no from investors—either way, you will soon get back to building your business.

You can’t hack a term sheet without leverage. Term sheets are negotiated on the basis of leverage, not merit. And whoever needs the deal least has the most leverage in a negotiation.

The simplest type of leverage is a great BATNA. A great BATNA might be a term sheet from another investor, an offer to buy your company, or an investment from angels instead of VCs.

Hostage negotiators learn how to negotiate with awful BATNAs where people die in a hail of bullets. If you’re not in the mood for a hostage negotiation, get a great BATNA by creating a market for your shares.

The market determines your company’s valuation.

Many entrepreneurs wonder what their company is worth. The incredible answer is: companies are worth what people pay for them.

There is no right or wrong price. The market clearing price is determined by supply and demand: how many shares you’re selling, your team, your product, your revenue, your salesmanship, et cetera.

The market determines your value, but there is no market for your shares—you must create it. How? At a minimum, get two independent, competing offers from investors who make it a habit to invest in startups at your stage.

You must focus on fund-raising to create a market.

Pitch all your prospective investors at the same time. Negotiate with all interested investors at the same time. You can’t clear the market in series, you can only clear it in parallel. Learn from Adam Smith at Xobni:

“Our series A didn’t happen quickly. We excited the people we met with, but we were timid about getting started having recently closed a $100k angel round. One firm had interest, so we thought “We better talk to someone else to make sure we’re getting a good deal.” That incremental approach went on for a few months. We were always in late stages with one investor but just beginning the dialogue with another. Deciding to raise money should be an atomic decision; don’t try to just dip your toe in.”

Jump on your desk, kick something, and declare a start to your fund-raising. Don’t negotiate consecutively, negotiate concurrently—you can’t create a market by meeting investors one-at-a-time. The only way to clear the market is to focus on fund-raising and talk to a lot of investors at once.

On eBay, everybody bids at the same time, over a short and arbitrary period of time. That drives the price up. They don’t bid one-at-a-time over a timespan of ‘whenever’.

Let's raise some fucking money.

Five fund-raising milestones.

The next few hacks will cover the five major milestones of fund raising:

  1. Get first meetings.
  2. Get partners meetings.
  3. Get the first term sheet.
  4. Sign a term sheet.
  5. Close the deal.

Your leverage goes up at each milestone—that is, your interest in new prospective investors goes down at each step.

Focus compounds scarcity and social proof.

Investors move in herds that are steered by scarcity and social proof. Scarcity is “hurry up or the deal is going to disappear.” It engenders urgency. Social proof is “everyone else wants to invest, don’t you?” It engenders validity.

Scarcity and social proof make people crazy. Scarcity and social proof close deals. Focusing on fund-raising creates a positive feedback loop of scarcity and social proof:

If one investor wants to invest, you get a little bit of scarcity and social proof. That raises the interest of a second investor and creates more scarcity and social proof. Which raises the interest of a third investor…

Learn more about the psychology of negotiation in Bargaining for Advantage. It combines the negotiation principles of Getting to Yes with the psychological principles of Influence. Chapter 6 of Bargaining for Advantage, “Leverage”, is free money.

Creating a market is (relatively) quick.

Focusing your fund raising on a short period of time (about 4-8 weeks) means you will raise money quickly. Or you will fail quickly and start working on getting past no. Either way, you’re no longer raising money, you’re back to building your company and serving your customers.

Related: You can’t clear the market in series.

Image Credit: Noah Angeja

Topics Auctions · Psychology

10 comments · Show

  • Anon

    Great post. It’s beneficial to create as efficient a market as possible for your shares. Having multiple alternatives sure beats trying to justify higher valuations through abstract debates about the market or likely outcomes. It also gets investors to move their asses and all of the other good things mentioned here.

    Some gotchas I’ve encountered:

    1. All money is not created equal: Really good investors add a lot of value. The downside is they pay less than everybody else. So don’t expect Sequoia to move too much on price just because some hooligan is offering some ridiculous deal. And be prepared (i.e. have a BATNA that’s actually good) in case your favorite investor simply says no.

    2. Collusion: Investors have deep networks, and long-term relationships. As much as it would be nice if the market were efficient, the bidding for startups isn’t like random people duking it out for a beanie baby on eBay: investors tend not to overtly screw each other/steal deals. Especially when, gosh, they could work together to drive the price down. It helps to have degrees of separation between your investors or angels in different syndicates.

    • Nivi

      Great points. Re collusion: don’t tell your prospective investors whom else you are talking to.

      • Anonymous


        I was under the impression telling them about other investors eying your startup provokes them to move faster in closing deals.

        Question is what can they really do if you reveal the name of another firm looking to finance your startup? Tell them “hey other firm, we want the spoils all to ourselves so back off”?

        • Nivi

          You don’t need to say an investor’s name to say that you have an offer from another top-tier firm. They will also see it through your confidence and leverage.

          Giving them the name of other prospective investors is an invitation to collude. But I’m not saying you should never do it, especially when you’re expecting a term sheet from a top-tier investor that can steer the herd.

  • arim


    I had a question and thought i should ask here.

    I am a founder of a startup and have shares that are both preferential and common (was also an investor in the company). Now the board wants to bring a new ceo and I intend to leave the company. Nn such cases if I wanted to get some liquidity and want to sell some shares are there firms that buy founders stock to give liquidity (if there is none I think it is a good idea to start one!). The company is going through a financing but might not give me liquidity.

    Can any one suggest what are the best ways to get liquidity? Please help me here.

  • Brandon

    Nivi –

    Leveraging an investment firm against another is a great strategy if you are looking to raise the entire funding from one firm. What about the scenario where you may need to raise funding from three or four various firms/funds in order to complete the round (e.g. – Angel round)?

    How successfully can one negotiate and leverage when multiple investors will make up the same round?

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