Many start-up founders have no experience in financing negotiations, and often consult with professional institutions or people to learn negotiation skills before negotiation. Many people think that the most important part of financing negotiations is when it comes to contract negotiations, but in fact, due diligence is the focus. From the beginning of the docking between the founder and the investment institution, the two parties have entered the negotiation process. An investment agreement is only a statutory document that stipulates the rights and obligations of both parties for a period of time, and due diligence is an important stage for both parties to understand each other, run in with each other, and test each other.

◆ Pay attention to the letter of intent for investment

The format of the letter of intent for investment by an investment institution is relatively fixed, and many terms are standard, including valuation method, capital contribution method, director seats, priority, etc. In recent years, due to the volatility of the primary equity investment market, the investment letter of intent, which was originally very important, will also have the phenomenon of "skipping orders".

In fact, except for the standard terms, other terms can be negotiated. For example, in terms of business valuation, the founders of the company hope that the investment institution can give a clear valuation, but the investor cannot give a clear answer before due diligence. Because at this stage, the investment project has just been approved, and the investor does not have a deep understanding of the investment company, and if the valuation is rashly given, it will put itself in a passive situation, and mature and rigorous investors will not make this mistake. The best way to solve this problem is for investors to clarify their downline, founders to clarify their expectations for the downline, determine a valuation range, and then give a clear corporate valuation after completing due diligence.

"Negotiation is an art of compromise", in the negotiation process, the investing enterprise and the invested enterprise each take a step back, leaving a certain space for each other, which can also enhance mutual understanding, make it easier to reach an agreement, and promote the success of the negotiation.

◆ Seek common ground while reserving differences, and put aside disputes

Control the pace of negotiations, negotiate around the standard terms first, and then negotiate around the key terms, and the whole process should follow the principle of grasping the big and letting go of the small. It is best to complete the negotiation and signing within 20 working days, as most of the terms of the investment agreement are standard, and some key figures, powers and responsibilities can be broken down into the documents.

Financing negotiations have entered this stage, financing companies and investment companies have paid great effort and energy, have given each other great trust and support, even if there are differences, but also to uphold the basic concept of "long-term win-win cooperation", first straighten out the standard terms and key terms. Among them, the standard terms mainly include anti-dilution clauses, valuation adjustment agreements, sales rights, liquidation preferences, repurchase clauses, financial supervision, right to know, inspection rights, etc., and key clauses mainly include valuation clauses, payment methods, board of directors, appointment of directors, key matters agreement, etc.

There is little room for negotiation on the standard terms, and the negotiation between the financing institution and the investment institution mainly revolves around the basic figures and key positions such as enterprise valuation, board of directors, observer seats, financial figures (budget and one vote), VAM (performance, listing), repurchase, number of votes, etc., and the negotiation content can be transformed into the financial valuation model of the enterprise, which directly determines the enterprise value and the possible future returns of the investment institution.

As for the flexibility part of the VAM clause, because the listing of enterprises is deeply affected by the external environment, there is a strong uncertainty, while the performance growth and digital curve can provide reasonable space. Rules should be established in advance for key positions such as chief financial officer, board seats, senior candidates, and corporate governance bodies. Financing enterprises can formulate a framework in advance and optimize and improve it on the basis of this framework, after all, whoever formulates the framework first has the right to define, so as not to lose the right to speak in the event of disputes in the future.