- Description
- Moving quickly through the decision process to an investment decision to issue a termsheet to a company can help win more deals. The termsheet can either be the end of a decision process or issued part-way through.
- Benefits
- Founders Feel Appreciated – By providing a termsheet quickly, the VC can signal a recognition of the quality of the business and a respect for the founder’s time and efforts. It can be flattering for a founder to see a VC move quickly and seemingly without doubts.
- Catch the Best Deals – Particularly at the later stages, many investors may recognize the quality of the company and be willing to invest. By moving faster than others, the firm may avoid missing out on these deals.
- Make it Concrete – By submitting a termsheet, the conversation often changes from hypothetical to concrete. A GP can be saying nice things about a company and expressing interest to a management team which can be understood with different levels of enthusiasm depending on culture and personality. By putting in writing an offer to invest in, it is more likely to be understood and signals strong intent.
- Foot in the Door – the termsheet can be used as a way to start a negotiation without an expectation that it will be accepted.
- Avoid Parkinson’s Law – Work often expands to fill the time allotted. By keeping a fast pace or moving quickly, a VC team may focus on the essential part of the decision rather than getting distracted with less relevant parts of the investment decision.
- Trade-offs
- Risk of Mistakes – if you make a decision too fast or without information that would have been available at a slower pace, it can increase the risk of mistakes and regrets.
- Less Time for Decision – the flip side of Parkinson’s law is that sometimes, you may actually want more time to make a good decision. For example, gathering external information like more market or reference checks can take time.
- Staff for It – Depending on the investment decision process, you may require more people on the team in order to accomplish the same work in less time. (Although paradoxically, smaller groups can make decisions more quickly.)
