Nothing Is “Standard”
March 8th 2018
I told this story last night at dinner to the Gotham Gal (who has heard it many times) and two friends who are in the investment business. They loved it.
I’ve blogged it before, but it has been almost ten years since I’ve told it here.
So I am going to share it with all of you this morning:
I woke up thinking about Morty this morning. I haven’t seen or heard from him in over ten years. But Morty taught me one of the most important lessons about negotiating that I’ve ever learned.
Morty was Isaak’s partner in Multex early on. They put up the initial money to get it started. Morty wasn’t a venture guy. He was a real estate lawyer and sometime real estate investor. He was as conservative as you can get and never liked the startup/venture business. But he was Isaak’s partner. And Isaak asked Morty to negotiate the term sheet for the seed round with me.
This was late 1992 and I’d been in the venture business for five years and was on my second or third deal on my own. I’d negotiated a bunch of term sheets by that point, but I’d never had a negotiation like the one I was in for with Morty. Actually I don’t think I’ve ever had one as rough as that since.
Morty wasn’t familiar with venture terms. They didn’t make sense to him. So standing in an airport pay phone (before cell phones) I went line by line, term by term with Morty.
We got to redemption and he started in. “Why do you need this provision Fred?“. I was getting tired of his non stop push back and blurted out “Because it’s standard. We always get this provision. Always have, and always will“.
That got Morty pissed. He shouted over the phone:
I don’t give a f>>>k that you always get this provision. Doesn’t mean shit to me. This deal will be the first time you don’t get it if you don’t explain why you need it.
That set me back on my heels and I weakly explained that if the deal goes sideways for years, we need some way to get out of the deal and redemption provides that path. I don’t even remember if he bought that argument. But I do know that we had redemption in the Series A at Multex and pretty much every deal I’ve ever done.
But the point Morty made rang true to me and I’ve lived by his rule ever since. I never ever say that a specific provision is “standard”. Nothing is standard. You either need it or you don’t. Explain why you need it and most of the time you’ll get it or something like it as long as both sides really want to make a deal.