Negotiate VC Funding Round - What to Expect and How to Reply? | VC & Startup Jobs.
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Deep Dive: Negotiate VC Funding Round - What to Expect and How to Reply?
Quick Dive:
Startup Legal Document Pack – Essential Legal Docs for Founders.
13 Successful VC Fund Decks That Raised Over $500M From LPs.
What Investors Want to See in Your Customer Discovery Process.
Major News: Cursor plans to raise at a $10B valuation, Discord is discussing an IPO, Microsoft develops its own AI models & More.
20+ VC & Startups job opportunities.
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Excel Template: Early Stage Startup Financial Model For Fundraising.
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📜 TODAY’S DEEP DIVE
Negotiate VC Funding Round - What to Expect and How to Reply?
Top Founders know that fundraising is a critical skill that’s much harder than meets the eye. But what’s rarely discussed is “Fundraising is a learned skill.” And VCs almost always have the upper hand because they deal with it all day, every day.
In reality, knowing what to expect from VCs – the negotiation dynamics Founders are likely to encounter – is half the battle.
Before you start talking with VCs, take the time to learn how to detect and manage these little-known fundraising dynamics. Let’s dig in. ( We are sharing this in a more conversational format….)
The Portfolio Trap
VC: "I'd like you to meet with one of our portfolio companies in your space. They can provide valuable insights, and we'd appreciate their perspective on your venture."
This request often puts founders in a tricky position. Sharing your plans with a potential competitor can be risky, and the existing portfolio company has little incentive to endorse your startup. They may tell the VC they're planning to expand into your area, making it challenging for the investor to back you. While VCs might have good intentions, this practice can sometimes backfire or be used to gather intelligence for their existing investments.
Founder’s Reply: If the suggested company is too close to your business, politely decline:
"I appreciate the offer and value your network. However, given the significant overlap between our business and this portfolio company, I'm not comfortable sharing our strategic plans. Perhaps we could meet with other industry experts who aren't directly in our space?"
If the portfolio company isn't a direct competitor, consider accepting:
"Thank you for the introduction. I'd be happy to meet with them. It would be valuable to hear about their experience working with your firm and get their industry insights."
Remember, your goal is to protect your business interests while maintaining a positive relationship with the potential investor. If you do meet, use it as an opportunity to learn about the VC's support and working style from an existing portfolio founder's perspective.
The Valuation Conversation
VC: "What valuation are you looking for in this round?" or "What's your target price for the company?"
This question is a common tactic used by VCs to gauge your expectations and potentially anchor negotiations at a lower point. While it's a legitimate inquiry, it can be a pitfall for founders who, in an attempt to appear reasonable, might suggest a valuation below their company's true worth. Remember, any figure you mention could become the ceiling, not the floor, for further discussion.
Founder’s Reply: Unless you're dealing with a priced extension round or a convertible note with predetermined terms, it's wise to defer to market dynamics. A tactful response might be:
"We're open to letting the market determine our valuation. We're more focused on finding the right partners who can add value beyond just capital."
If you've had a previous funding round, you can provide context without committing to a specific number:
"Our last round valued the company at $X million post-money. Since then, we've achieved significant milestones, including [brief mention of key metrics or achievements]. We believe these developments have substantially increased our value, but we're eager to hear the market's perspective."
This approach demonstrates confidence in your company's progress while leaving room for negotiation and avoiding the trap of undervaluing your startup prematurely.
Turn Into Home Run
VC: "Based on our analysis, we'd like to offer you $X million at a valuation of $Y million."
This initial offer might seem disappointingly low. It's a common strategy in VC negotiations, often serving as a starting point rather than a final stance. Inexperienced founders sometimes react emotionally, potentially derailing a deal that could have been salvaged with the right approach.
Founder’s Reply: The key is to remain composed and professional. A strategic response might look like this:
"Thank you for your offer. We appreciate your interest in our company. While this valuation is considerably below our expectations, we'd like to take some time to review it in detail. We'll get back to you soon with our thoughts."
This response acknowledges the offer without accepting or rejecting it outright. It buys you time to explore other options and potentially leverage them.
If you receive more attractive offers later, you can circle back:
"We've had some time to consider your offer and explore the market. We've received interest at significantly higher valuations that better align with our growth trajectory and potential. We value our relationship and wanted to allow you to revisit your offer if you're interested. If not, we completely understand and hope to stay in touch for future opportunities."
This approach keeps the door open while signalling that you have other options. It gives the VC a chance to improve its offer without burning bridges. Remember, maintaining positive relationships in the VC world can be beneficial for future funding rounds or networking opportunities.
Deflect the Friendly Lowball
VC: After a warm, engaging meeting filled with enthusiasm and positive feedback, the VC follows up with a surprisingly low offer. This unexpected contrast between their friendly demeanour and the underwhelming valuation can catch founders off guard.
This scenario often leads founders to doubt their judgment or feel pressured to accept a subpar offer due to the perceived rapport. It's a subtle tactic that leverages the positive connection established during the meeting.
Founder’s Reply: The key is to maintain your composure and separate your emotions from the business decision at hand. A balanced response might look like this:
"Thank you for the offer. We truly enjoyed our meeting and appreciate your enthusiasm for our vision. However, the proposed valuation is significantly lower than what we believe reflects our company's current value and potential. We'd like to take some time to carefully consider this offer in the context of our market research and growth projections. We'll get back to you soon with our thoughts on how we might bridge this gap."
If the VC doesn't adjust their offer, you can follow up with:
"We've given your offer careful consideration. While we greatly value the potential of working together, we feel that this valuation doesn't align with our company's trajectory and the current market. We're open to further discussion if there's room for adjustment. If not, we hope to keep the door open for future opportunities as our company grows."
This approach maintains a positive relationship while firmly asserting your company's value. It leaves room for negotiation without committing to an undervalued deal. Remember, a good partnership should be mutually beneficial, balancing enthusiasm with fair terms.
Focus on Pre-Money Valuation
VC: "We're looking at investing $2M at an $8M post-money valuation."
VCs often frame discussions in post-money terms, which can lead to confusion and potentially reduced founder ownership if the round size changes.
Founder’s Reply: "Thank you for the offer. To ensure we're on the same page, let's discuss this in terms of pre-money valuation. Based on your proposal, we're looking at a $6M pre-money valuation. Is that correct? We prefer to focus on pre-money valuation as our fundraising target may adjust."
ESOP Negotiations
VC: "We'd like to see a 20% ESOP allocation before the round."
VCs often push for large ESOP pools to reduce their future dilution. They may request excessive allocations, sometimes up to 20% or more, which can significantly impact founder ownership.
Founder’s Reply: "We've analyzed our hiring needs until the next funding round. Based on our projections, a 10% post-round ESOP pool should suffice. This includes 2% for a key hire we've identified and 5% for additional team members over the next 18 months. This aligns with market standards for seed rounds and ensures we have enough to attract top talent without over-diluting existing shareholders. We're open to discussing specific concerns you may have about our hiring plan."
Distinguish Genuine Interest
VC: "We're interested in investing, but we'd need you to find a lead investor first," or "We'd like to commit, contingent on you raising the rest of the round."
VCs often use these tactics to keep their options open without fully committing. They're expressing interest but aren't ready to take the lead or make a firm commitment.
Founder’s Reply: "We appreciate your interest in our company. We're currently focusing on investors who are ready to commit without contingencies. Once we secure our lead investor, we'll reach out if there's still room in the round. In the meantime, would you be open to introducing us to any potential lead investors in your network?"
This response politely acknowledges their interest while prioritizing more committed investors. It also leaves the door open for future participation and potentially leverages their network.
That’s it.
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📃 QUICK DIVES
1. Startup Legal Document Pack – Essential Legal Docs for Founders
Starting a company is exciting, but many founders overlook the legal side—until it’s too late. Whether it’s splitting equity, raising funds, or hiring your first team member, having the right legal documents in place from day one can save you from serious issues down the road.
Why These Documents Are Critical
Legal paperwork isn’t just about compliance—it protects your business, your team, and your investors. Proper documentation ensures:
Founders are aligned on ownership, roles, and responsibilities.
Investors trust your startup, making fundraising smoother.
Employees and contractors don’t walk away with your IP.
Your company doesn’t collapse due to a legal dispute.
Many early-stage startups raise funds or start hiring without any legal foundation, creating problems that can kill deals or cause internal conflicts later.
Common Mistakes Founders Make
Skipping Founder Agreements
Many co-founders start with a handshake deal. Without a Founders' Agreement or Restricted Stock Agreement, things get messy if someone leaves or equity splits aren’t clear.Not Incorporating Properly
Choosing the wrong structure (e.g., LLC instead of C-Corp) can make it harder to raise VC funding. Investors prefer Delaware C-Corps because of standard protections and tax advantages.No Vesting Schedule for Founders
Without a vesting schedule, a founder who leaves early keeps all their shares—even if they stop contributing. A 4-year vesting with a 1-year cliff is the standard setup to prevent this.Fundraising Without Proper Documents
Raising money without a SAFE note, convertible note, or term sheet can lead to legal disputes, unexpected dilution, or even losing control of your startup.Not Securing Intellectual Property (IP)
If employees or contractors build your product without signing an IP Assignment Agreement, they own the IP, not your company. This mistake has killed acquisition deals and lawsuits have followed.Forgetting Data & Privacy Compliance
If you collect customer data, you need a Privacy Policy and Terms of Service—especially if you serve users in California (CCPA) or the EU (GDPR). Failing to do so can lead to heavy fines.
To avoid these mistakes, you need the right legal documents in place from day one. The Startup Legal Document Pack was created with input from experienced startup attorneys, legal associates, and venture capital firms to make sure you’re using up-to-date, investor-approved templates.
You can access all the essential templates—from incorporation docs to fundraising agreements—in our Startup Legal Document Pack.
2. 13 Successful VC Fund Decks That Raised Over $500M From LPs.
Raising money is tough for both founders and VCs, but it’s even harder for VCs. They must persuade limited partners (LPs) to invest in their venture capital funds.
I've analyzed how successful VCs craft pitch decks that help them raise massive amounts of capital. Here's what I learned.
Think of fund managers as salespeople. Their pitch deck (or memo) is their most powerful sales tool. It needs to do two things really well: hook LPs enough to get that crucial first meeting, and serve as a compelling narrative during and after the pitch.
Here are four main takeaways to consider when creating a deck for LPs:
The purpose of your pitch deck is to convince LPs of your ability to make outlier investments. Show how you access, make sound decisions on, and win exceptional deals.
Your pitch deck should tell a clear, concise, and convincing version of your fund's story.
Show, don't tell, using examples, numbers, and visuals to add credibility.
Let others speak to your strengths with quotes from founders, testimonials from references, and committed LPs to establish social credibility.
But what Goes Into a $500M+ Fund Deck? Here's the winning structure I've seen work:
Title: So, what's this fund called? Which fund is it?
Team: Who is the GP? Who else is on the team?
Access: How do you get access to high-quality investment opportunities? What's your advantage?
Ability to win: How will you win competitive deals? What's your value-add to founders?
Investment Focus: What are you investing in? Why? Do you have a unique insight into that focus?
Track record: Do you have investment experience? What's your past track record? What are your most impressive investments?
Fund structure: What's the size of the fund, the stage you're investing in, the number of expected investments, and other details on the fund structure?
Network: Who's in your orbit? Which founders, investors, and others do you collaborate with and can you show examples?
Appendix: Additional materials that might be useful to include
You can access all 13 VC fund decks here.
3. What Investors Want to See in Your Customer Discovery Process.
I was discussing customer discovery with an investor, and one thing became clear—most founders don’t approach it the right way. Many believe they need a million-dollar revenue sheet or a long list of customers to impress investors. But what early-stage investors actually want to see is proof that you’ve done the work to deeply understand your market.
Investors aren’t expecting you to have all the answers, but they do expect you to have tested your assumptions. Customer discovery isn’t just about validating your idea—it’s about refining your understanding of who your customers are, what their pain points are, and how they’re currently solving those problems.
In the early days, your vision of the problem and the ideal customer is blurry. You might start with a hypothesis like:
“I think our customer is a typical business with 50 employees, spending $100k annually on solving X type of problem in X sector.”
Through customer discovery, you sharpen that image into something like:
“Our ideal customer is a fast-growing tech company with 100-250 employees, spending $250,000-$500,000 annually on this problem, and considers it a top 3 priority to solve in the next 6 months.”
That level of clarity is what investors want to see—not just numbers, but a clear, well-researched understanding of your target audience and how you arrived at that insight.
The biggest mistake founders make in customer discovery is falling into confirmation bias. This happens when you unconsciously ask leading questions that reinforce what you want to hear rather than uncovering the truth.
If you only seek validation, you risk:
Overestimating demand for your solution
Misunderstanding customer priorities
Building a product the market doesn’t actually need
To avoid this, focus on asking open-ended questions that challenge your assumptions, such as:
How painful is this problem for you?
Is this problem in your top three priorities to solve in the next 12 months?
What results would you need to see from a solution to justify paying for it?
If I explained my solution, would you be ready to pay for it immediately, or would you need more information?
Customer discovery might lead you to an unexpected realization: your initial target audience isn’t actually the best fit. That’s not a failure—it’s a breakthrough.
Investors love when founders can say, “We initially thought our customer was X, but after deep customer discovery, we realized it’s actually Y.” This shows adaptability and a willingness to pivot based on real data rather than stubbornly sticking to initial assumptions.
Another common outcome of customer discovery is recognizing that some of your early customers aren’t the right long-term fit. For example, you might find that selling to 10-person teams takes just as much effort as selling to 100-person teams, but the larger teams generate significantly more revenue. Recognizing this allows you to focus on the most profitable customer segments instead of spreading yourself thin.
What investors really want to see is that you:
Know exactly who your ideal customer is and why
Have tested and validated your assumptions through direct conversations
Are willing to adapt based on real market insights
Can prioritize the most profitable opportunities
Customer discovery isn’t just a checkbox—it’s a strategic advantage. The founders who master it are the ones who attract investment and, more importantly, build sustainable businesses.
THIS WEEK’S NEWS RECAP
🗞️ Major News In Tech, VC & Startup Funding
Anysphere (Cursor), a San Francisco, CA-based AI-powered coding assistant developer, is in talks to raise funding at a ~$10B valuation. The round is expected to be led by Thrive Capital. (Read Here)
LoneTree, a NYC-based growth capital firm, announced the final close of LoneTree I, its inaugural $200M growth equity fund. (Read Here)
Discord is in early discussions with investment bankers about a potential IPO, though plans remain exploratory, per The New York Times. (Read Here)
Microsoft is building its own AI “reasoning” models and developing a family of models called MAI, aiming to reduce reliance on OpenAI. (Read Here)
SpaceX's Starship experienced a malfunction and spiraled out of control during a test flight on Thursday, marking the second consecutive launch failure as the vehicle attempted to reach orbit. (Read Here)
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CURATED RESOURCES
Access Curated Resources For Founders & Investors…
Building Cap Table As A Founder: Template to Download.
Excel Template: Early Stage Startup Financial Model For Fundraising.
2700+ US Angel Investors & VC Firms Contact Database (Email + LinkedIn Link)
All-In-One Guide To Pitch Deck Storytelling - Free Template & Curated Resources.
Write Your Monthly Investor Update (Email Template Download).
400+ French Angel Investors & Venture Capital Firms Contact Database (Email + LinkedIn Link).
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350+ Indian Angel Investors & Venture Capital Firms Contact Database (Email + LinkedIn Link).
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