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July 03, 2008



While I have not (yet) had the good fortune to work with you I am an avid reader of your blog and one of the things I really enjoy is the no-nonsense, matter of fact and common sense approach you take with most issues.

In business relationships I am a firm believer that gamesmanship and positioning is a poor long term strategy, as in time everything comes out in the wash. Communicating openly and honestly with Business Partners as soon as it is reasonable to do so allows you to collectively address issues and assess action plans to remedy issues or capitalize on opportunities.

There are times early on in a the evolution/creation of a relationship that it is prudent to tread slowly (as your 3 questions post points out) but in my experience there is no benefit to avoiding the elephant in the room.

Once you send your "intent email" and you and the entrepreneur are on the same page, what are your expectations regarding the entrepreneur continuing to negotiate with other investors?

This concept makes so much sense for both sides of the deal. A simple letter letting the entrepreneur know what your intentions and expectations are is the best way to create immediate trust with me as an entrepreneur. The upside has to be huge.

This should be the basis for early VC communication with startups across the board.

Would you consider sharing a "dummy-data" version of a letter? It would be great for me to be able to understand the contents better.

Great post.

I agree that this "letter" is a great approach, really in the best interest of both parties. I would also add that the later stage the company and round of funding, the more standard this practice is. It is fairly common on growth equity deals, and pretty much standard on acquisitions, for interested parties to submit a non-binding "indication of interest" letter that includes the following sections:

- Valuation (often stated as a range, but people just view the high end as the same "best case" number anyway)
- Structure (key points that will go into the term sheet)
- Financing (when debt is applicable to the deal)
- Key Due Diligence Items
- Timing and Approval Process

Of course, a lot of times these letters are required because of a more formal process being run to raise money (i.e. investment bankers)...but it has the same positive effect as what is outlined above. It's a good way to get a base of expectations on the table and be judicious with everyone's time...not to set terms in stone, but if two parties are simply way off in terms of thinking, best to not waste everyone's time, or at least focus the conversation on some key "make or break" points.

Nice post!

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