Sometimes you have to take your financing where you can find it and deal with the consequences later. If there were but world enough and time, you could negotiate the correct fair valuation for you business and the correct fair terms for you and the investors. But there never is (world enough and time) nor is this the best of all possible worlds. So, in the end you will have to settle, and, with luck, if you don’t get what you want at least you will get what you need. Along the lines of dealing with the real imperfect world, here are a few thoughts based on some client experiences.

In all financings, but particularly smaller ones, transaction costs can really croak you. Here is one example, you are trying to get $200K from an angel investor. How much do you want to spend documenting and closing the transaction? As little as possible, of course. So, in an effort to make it easy, you tell the investor that your lawyer will prepare a term sheet for set of fair but simple docs. True to his word, you lawyer prepares the term sheet and it does not include registration rights a drag along and perhaps other investor rights (that I would argue probably don’t really matter to an angel investor putting in $200K). The investor then shows it to his lawyer who points out all the stuff that is missing. Now comes the dilemma. Should you negotiate with the investor to try to keep all the stuff out? Should you have the lawyers talk it over? Should you just cave? Remember, $20K is ten percent of $200K. You can hit that number really fast if you, your investor and two lawyers spend much time wringing your collective hands over various rights. Each situation is different and, as sure as God made little green apples, one day one of these provisions is really going to matter to someone. Having said that, you probably need the money today. Consider being a big boy, giving it up gracefully and taking the path of least resistance (and, we hope, lowest cost).

Of course one (actually many) of my clients did exactly that, took the path of least resistance). This client has a provision tucked away in the automatic conversion section of his preferred stock that can only be described as weird. This is the section that provides for the preferred stock to be automatically converted into common stock upon an IPO. (And, how may IPOs have we seen recently?) We agreed to the weird provision with the prior investor because we decided to be big boys etc. Now, the new investor wants it out and the old investor is chewing his nails over it. This will, of course, engender delay and cost. The moral to the story might be that we should never have agreed to the odd provision in the first place. But, would we do it again? You bet. We closed the last deal on time (and sort of on budget) when we needed it. So today we have to deal, and we will and we will get past it.

At some level, it is all about judgment. You need to know what is important and hold fast to your thoughts. You also need to learn to live with and deal with other peoples’ oddities. The perfect deal is not perfect if you don’t get what you need when you need it.