I can relate to a number of these points in our Series A negotiations and the time since.
You can build trust more easily when the other party is vulnerable.
A standard part of a Series A term sheet is a ratchet clause. The ratchet clause protects an investor by 'ratcheting up' their equity stake automatically if the business raises additional money in the future at a valuation lower than the current round. This ratcheting comes at the expense of the founders and prior investors. There are different types of ratchet clause, some benefit new investors at the expense of founders more than others. Bill Bartee was leading the negotiations from the side of our Series A investors and the term sheet he provided had a ratchet clause in it. This was my first time negotiating a ratchet clause and they're quite complex. I thought I'd worked out an alternate ratchet clause that would be more favourable to Mike, Jodie and I as founders of Shoes of Prey so I went to Bill with this alternate clause to negotiate moving to it. Bill listened to the details of my new clause and then very politely pointed out that what I was proposing was actually worse for Mike, Jodie and I than the clause he'd originally proposed. He was right! Not only was he very polite about pointing this out, but he saved me from negotiating a worse result for Mike, Jodie and I, a result that would have been better for Bill! In doing that Bill earned a huge level of trust from me which has carried over through our working relationship.
Transparency is often less costly than you fear.
My example here doesn't specifically apply to negotiating with VCs but it applies to communicating with investors ongoing. We've had times where things haven't gone to plan and I've gone into a board meeting feeling like our investors would have good cause to be frustrated and angry with me for not achieving what we said we would. On the contrary, by being completely open and transparent in these situations our investors have gone out of their way to point out that things not going to plan is normal at a startup - after all, if it was easy to build a large business selling custom women's shoes others would have done it before. They've then banded together with us to come up with solutions to help solve the problems, leading to better results. I've also had a couple of investors tell me that they really appreciate the level of transparency and it means they trust us more and feel they don't need to drill into what we say or ask for supporting material when they might otherwise.
Hat tip to Laura McKenzie for recommending the article. Laura is the CEO of Scale Partners, a new group based in Melbourne designed to help investors and entrepreneurial women connect.