Avoid Complicated Deals

Avoid Complicated Deals

One of the godfathers of Venture Capital (VC) in the USA is Fred Wilson, the co-founder of Union Square Ventures and Flatiron Partners. He’s invested in companies like Twitter, Kickstarter, SoundCloud, Tumblr, Zynga and tons more.

Fred wrote recently that one of the key takeaways from his first deal was “to avoid complicated deals. It seemed like such a smart deal structure but it really wasn’t.”

We’ve had a few complicated deals early on and they were terrible in the end. So now we have an informal checklist that we run through when making a new deal that goes something like this:

  • If the person on the other side of the table is a smooth-talking salesy person, but has little track record on running and operating a business, avoid it.
  • If you don’t understand the terms, avoid it.
  • If scheduling your meetings and get togethers becomes a back and forth phone-tag-fest, see the writing on the wall. If you can’t even agree where to get coffee, might want to avoid that one.
  • If an investor wants to give you money, but starts talking about restructure and you don’t understand it, ask a lot of questions, get advice, and avoid doing the deal until you have further understanding.
  • If your founding team doesn’t get along with the dealmaker, better avoid that one.
  • If you’re doing a commission deal and the commission payer won’t agree to show you metrics and their financials so you can track progress, avoid the flipping deal, man!

New deals always sound so juicy and delicious. It’s like biting into a steak that you thought was going to be cooked medium and it’s completely raw. It leaves a bad taste in your mouth and might make you sick to your stomach.

Avoid complicated deals.

(photo via kordite)