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Investor Due Diligence

TheFunded.com Advice

Posted by CEO for a while on 2009-08-10

PUBLIC:

Guys and Gals,

I'd like to recommend that we entrepreneurs band together to stop an inexcusable practice among VCs. I've done a few startups, sold a few companies, bought a few companies. Been active in the publicly-traded and private arenas. Something that completely irks me about VCs today is that they want entrepreneurs to open their books pre-term sheet (on top of the ridiculous gymnastics we already do to get capital.)

After a pitch, and untold number of follow-up discussions, a VC should be able to put down terms. We should not have to introduce them to any 3rd party (our valued business partners, customers, etc.) because its taxing to them UNTIL there's a term sheet on the table.

A later stage company would never let an investor or buyer in the door unless there's a term sheet. Why should an early stage company abandon this discipline?

My view is that we can make claims pre-term sheet. And if they find our claims to be exaggerated post-term sheet (during diligence), they can walk. It's non-binding anyway.

Thoughts?

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