- Description
- Setting a tight timeline for a founder to decide on a term sheet is another strategy for winning. While term sheets typically expire at some point, this strategy is one of setting a quick timeline and making that relevant and salient for the founder. It may be coupled with the message that once the deadline passes, the offer will no longer be available. The negative connotation name for this on this Venture Pattern is an “Exploding term sheet”.
- Benefits
- Create Urgency & Get Attention – By creating urgency for the term sheet decision, you can get attention from founders and any other decision-makers (board, previous investors, etc.).
- Less Shopping – the company has less time to create alternatives, or use the term sheet as a proof point or leverage to convince other investors. A VC pursuing this strategy wants the term sheet to be considered on its merits not used to create an auction.
- Trade-offs
- Reputational Impact – Firms can get a negative reputation for “pressuring” founders or trying to “trick” them into signing a deal that is not the best they could receive.
- Weaker Relationship – if founders feel they may not have a lot of other options, they may feel pressured into accepting the term sheet. Later, they can be less certain they made the right choice in lead investors. This may impact the relationship over time.
