A Lesson From Morty
In the comments to "Term Sheet Manners" we got to talking about Morty, a lawyer who taught me some seminal lessons in deal negotiation almost 20 years ago now. I was going to write a post about Morty but then realized I had done exactly that a few years ago. So I doing something I've never done before. I am reblogging a previous post because it's such a good one and because I learned a lot from Morty and you can too.
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
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:
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.