You set the price; I’ll set the terms

Bill Daniels, a cable tycoon, was a consummate deal maker.  I never had the honor of meeting Bill, but his reputation in the industry has stood the test of time as have some quotes that have been attributed to him. My Partners, some of whom had the great pleasure of knowing and doing business with Bill, are fond of one such quote:
You set the price and I’ll set the terms.
From what I am told, Bill understood the interaction between pricing and structure better than most. The essence of the quote is that pricing and structure are inextricably linked; you cannot fully understand the valuation of the deal without fully understanding each of its elements.

Often, I find that entrepreneurs overemphasize pricing (the pre-money valuation) and under-value structure.

You set the price; I’ll set the terms

When Expectations Converge

Yesterday, I posted on a VentureBeat piece covering the correlation between exit market conditions and venture capital company-building behaviour and philosophy; or lack thereof. The piece called for a back-to basics approach to venture capital, where investors are focused true partnering with entrepreneurs to build fundamental value over a traditional investment horizon (5-7 years).

In today’s post, I wanted to tackle the flip side of this issue; the notion that exit markets and general public equity market conditions also have an impact on venture investor investing behaviour. In my opinion, there are three things required for a healthful level of new venture investment activity; liquidity, valuation stability and convergence of expectations.

When Expectations Converge