It's a tactic to get the company into the 'no-shop' stage of a deal, where they've agreed (and probably signed legal paperwork) to say that they won't talk to other investors. Once in that stage, the investor is free to begin renegotiation of key terms. Valuation is rarely the only item on the table. Consider, board seats, liquidation prefs, change of control, etc. there are myriad ways that a company can end up (inadvertently) screwing itself.
exclusivity is one clause in that term sheet. what i don't understand is how can exclusivity apply if the investors are allegedly renegotiating those same terms. surely, if investors breach any terms along the way, exclusivity/no-shop doesn't apply any more.
i'm having some trouble believing the entire Andreessen rant. if companies get screwed during the no-shop period because major pre-agreed terms are broken, the company/founders are free to go to other investors. something doesn't add up, I wished Andreessen was a bit more explicit in his complaint.
Sure, but valuation is probably the biggest one. Why aren't we seeing lower valued companies then with non-SV investors?
The whole point of Andreessen's comment is that companies would have little choice. It doesn't follow that valuation, the biggest term, would be magically exempt from this renegotiation tactic.
> "Sure, but valuation is probably the biggest one."
No, it's really not. If someone offered me a sky-high valuation but demanded 15 board seats I would be pretty foolish to blindly accept. I'd have just given up control of the company. Or what about the specifics of any anti-dilution provisions?
> "The whole point of Andreessen's comment is that companies would have little choice. It doesn't follow that valuation, the biggest term, would be magically exempt from this renegotiation tactic."
If valuation is not the most important term to the investor, then it's it's not the one they have to play hardball with. It's possible that the companies are simply blinkered by the vanity around huge numbers and not paying attention to the other factors.
In any case, if I want to later on assume more control of the company I can offer a ridiculous (and unsupportable) valuation and then exploit other mechanisms via a subsequent down-round to attain a larger share for myself. Some people might call this unethical, others might call it business-as-usual.
It's a tactic to get the company into the 'no-shop' stage of a deal, where they've agreed (and probably signed legal paperwork) to say that they won't talk to other investors. Once in that stage, the investor is free to begin renegotiation of key terms. Valuation is rarely the only item on the table. Consider, board seats, liquidation prefs, change of control, etc. there are myriad ways that a company can end up (inadvertently) screwing itself.