The First Uncomfortable Conversation I have with a Founder

This question is always the most uncomfortable for me. This conversation is likely the first time an entrepreneur and I will not see eye to eye.

I have had experience speaking about valuation in multiple ways. At an old firm I used to work at, we would send out term sheets without even discussing valuation or terms. Terrible, I know! This strategy usually ended up with crickets or a disenfranchised founder. 

When I started my firm, I wanted to do things differently. I now sit down with a founder and explain my rationale for valuation and terms. Explaining the context of the deal was my responsibility, not their lawyers or advisors.

Today I don’t bring up valuation until I understand the deal and like it. This method has been working so far (batting 2-0 this year) because it allows the founder and I to develop a relationship before talking about ownership.

When the velocity and quality of deal flow increase, this strategy will probably have to adapt again. I spoke to two of my “belt loopers,” They told me they have the valuation question upfront works not to waste their or the founder’s time.

So far, having an authentic conversation after the relationship is built works for me.