Dealing with founders demanding quick term sheet decisions. How do you navigate their aggressive timelines?

Chances are they have multiple investors lined up for the round - so ferret out this information and gauge if you would like to co-invest with these investors. If these are in your 'preferred' co-investor list - that is ones that you are comfortable working with - then it typically obviates the need to conduct at least part of the DD, thereby shortening the decision making cycle without compromising on desired startup quality. By no means, should you gloss over red flags that you might encounter in the process. If this is a deal you really want, move resources around temporarily to gather necessary information to meet deadlines.

If the urgency is strategic, prioritize your due diligence to focus on the most critical aspects of the term sheet that could impact the deal's success. This might include financials, valuation, control terms, and any deal breakers that need immediate attention. Be willing to adjust your internal processes where possible to accommodate the urgency. However, ensure that this flexibility doesn’t compromise the integrity of the decision-making process.

Bad investments love rushed decisions. In business (regardless of VC or any other industry), if someone presses you with urgency to commit capital without a real tangible reason, go slow. Sure, there can be an outlier deal that requires you to move fast, but then there is usually a quantifiable reason for it (strong presence of lead investors, etc.). If someone just creates artificial timelines to create urgency, go extra slow and consider this tactic as a warning signal.

To balance speed with thoroughness, consider implementing a phased due diligence approach, focusing on critical areas first and addressing less urgent matters later. Additionally, clear, mutual timelines and checkpoints must be established to ensure that both parties remain aligned throughout the process. Leveraging a dedicated team to handle the high-priority aspects can also help streamline the evaluation without sacrificing quality.

Don't compromise on your due diligence. Every investor must know the key items on their due diligence checklist that they can't move forward without. If you don't have that key information, don't move forward. VCs are ultimately the shepherds of their LPs' capital, and compromising on key due diligence items is the safest way to turn an investment into a gamble.

Muito momentos importantes na nossa tomada de decisão acabam por ser dificultados justamente pela falta de priorização de tarefas, pois conforme avançamos surgem novas demandas e em momentos de muita demanda acabamos por esquecer o controle e prazo acabam por serem perdidos.

Creating a balance between speed and adequate due diligence before investing in startups is an art that needs to be mastered by VC's. In my personal experience , I prioritize certain aspects of the DD process to make the right decision and ensuring its done in time. Some of the key aspects I prioritize -Understand the founder team -Potential growth of the market -USP of the Product/solution including patents -Financial traction and projections. I ensure that once these aspects are satisfactory , I have regular calls with the founders, understand your unit economics , product and competition landscape. Also I have created a detailed excel template to remove subjective bias which help me to quickly shortlist potential winners.

When faced with founders demanding quick term sheet decisions, clear communication is crucial. Start by being transparent about your decision-making process and the time required for due diligence. If you anticipate any delays, inform the founders right away. Establish a timeline with clear milestones to manage expectations and keep both parties aligned. This approach ensures that you maintain professionalism, manage the founders' expectations, and keep the process moving efficiently while addressing their aggressive timelines.

One method to negotiate more time is to highlight the importance of thorough due diligence for the long-term success of the partnership. You can also propose a conditional agreement to show commitment, assuring them that you are dedicated to reaching a mutually beneficial decision. Additionally, involving a third-party advisor can help validate the need for additional time and provide an objective perspective.

When founders push for quick decisions, emphasize the importance of a thorough process for mutual benefit. Suggest implementing a phased approach where key terms are agreed upon quickly, but final details are contingent on completing critical due diligence steps. This phased commitment can include milestone-based progress, ensuring that both parties remain aligned without rushing into a potentially flawed agreement. Additionally, communicate openly about the risks of hasty decisions, framing the extended timeline as a strategy to safeguard the startup's long-term success. This approach balances the need for speed with the necessity of making informed, strategic decisions.

A few unpopular opinions here: 1. I have almost never had a "you must make decision by this date" turn out to be true. So I mostly ignore this 2. When folks tell me they're about to get another term sheet, they usually aren't - I don't think they're lying, but they're optimistic, and these don't always land 3. I just explain our process and do my best to quickly go through it. If the timing doesn't work out, that's ok. 4. Exceptions to everything - in some cases you just wire or sprint. But this is clear when you have data proving you are in an exception state.