Because It's Standard

Case studies are true stories that teach lessons. And one of the great lessons I got in my career was care of a lawyer named Morty. This is a reblog of a post I wrote in Feb 2007. I thought about it last week in an email discussion with a friend. And so I decided to share it with all of you as part of the MBA Mondays series.


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 had done at that time.

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.

#MBA Mondays

Comments (Archived):

  1. CaseyWhitehead

    the “standard” argument is even weaker given you’re working with people who are trying to create things that disrupt everything that is standard

  2. ZekeV

    I love it when lawyers defend a position on the basis that it is “market”, as if that means a request is somehow “reasonable”. That is some lazy lawyering (of which I am guilty myself on occasion). There are real benefits to standardization. It promotes efficiency, especially if you’re in the business of closing similar deals. Also a bias in favor of precedent is a good risk control strategy. But “market” should not be an appeal to fairness.

  3. William Mougayar

    There is almost nothing standard in the VC/tech startup world.Name 2 deals that were the same. Hardly possible, yet you often try & start with similar terms as something done before, but never end-up in the same place.When you think you have it figured out, a new twist is always at the corner. Entrepreneurs & VC’s are creative people, and that makes their dances interesting.

    1. fredwilson

      actually, we use standard forms in most of our seed and series A deals. that means that neither side has to spend money on legal fees.but if someone wants to do something non standard, and is willing to accept the costs of doing so, we aren’t going to fight it

      1. William Mougayar

        So you make the startup pay for both sides legal fees if they want to make changes?Time spent on changes is also an indirect expense.

        1. fredwilson

          not necessarily. we might pay for our legal fees. or we might ask the startup to. it really depends on why. if the work is to create some sort of tax advantaged ownership structure for the founders, for example, who should pay those fees?

          1. tsella

            Loved this post. To this tax point I’d like to ask a different question, also “why standard?”. As a long time VC, you have seen most of it, and you (personally and as a firm) know what a best practice for a founder in taxation or otherwise would be. Being on my first venture, I would have really appreciated some boilerplate advice on these matters.Sure, I could have asked the questions and researched this, but I was and am more mindful of the business than my self, and to be honest, also a naive rookie AND needed the money.. Judging from your comment above, it sounds like I am on the same boat as many others.To be clear – I think all our VCs have been transparent and fair, just saying I would have appreciated some advice on these matters, and I don’t think it would be detrimental to the VC, as long as you put some “caveat emptor” on the advice and assume no liability.I assume you also saw what Bijan/Spark announced. PandoDaily covered it and called the current situation as “competition to be pro-entrepreneur”. I think the above would have been very “pro-entrepreneur”.

          2. fredwilson

            I saw the Spark announcement. It is a bold move. But legal fees are not the only issue that matters when choosing a VC firm. And there are multiple ways to address the underlying issue

          3. LE

            Without weighing in on whether it was good or bad I will say that I see that as more of a populist move that plays well to the crowds and make then focus on the wrong thing. I mean you choose the best situation overall and the best firm not the one that buys you lunch and gives you free pastries for morning meetings.Hard to believe that there are not cases of startups that have gotten handshake and then at the 11th hour said “oh one more thing – I don’t like this legal fee thing so forget that”.

          4. tsella

            Populist? I wholeheartedly disagree. And so do you… as you point out, it is “hard to believe… I don’t like the legal fees so forget that”. Its being pro-entrepreneur as in fair and helpful, not as in free pastries.I think its wrong for a founder to be in an ADD situation over these and other concerns. To my, and I believe others, detriment, we focus 100% on doing what the business needs, and ignore these tidbits, and so, yes, we could find ourselves stuck with a legal bill for a broken deal, or with a tax or immigration issue among others.

          5. LE

            “And so do you…”Not really.The definition of populist that I will refer to is:”A member or adherent of a political party that represents the interests of ordinary people.”So in this case I see this as pandering to people who accept it as “the way it’s done” and wouldn’t on their own even think to ask or demand it otherwise (or at least try).As Fred said above “But legal fees are not the only issue that matters when choosing a VC firm.”So to me trying to position yourself or being perceived as more honorable or more deserving of a deal because you do this is a “nice try”. Nice attention getter though. But it’s no “the dead allows you to record at concerts”………”

          6. Donna Brewington White

            It made a statement.

      2. LE

        “actually, we use standard forms”Fill in the blanks even better. [1] One of the things I used to advise people years ago when I was in printing was the use of standard forms that actually look standard. (Think of a standard lease form that is “fill in the blanks”.) I found that people are much less likely to question something if the forms are “fill in” because that telegraphs “this is standard and is what everybody uses.”. Car dealers do this as well but with a twist. They have things that are listed and imprinted on the form in advance as if “everyone pays this charge”. (Attached.) One other thing that can lessen the chance of someone finding something is to make your line lengths really long on contracts. People have a hard time keeping track of what they are reading, it’s tiring and it confuses them.[1] Not saying for what you are doing of course but applicable to other cases.

    2. awaldstein

      Need to say that the very worse contract deal that I ever did was as a startup negotiating a combo investment/distribution deal with HP ;)Talk about BS and arrogance and lawyering up. Learned more about negotiating as the little person during this deal than any other.

  4. jason wright

    where’s the trust?

    1. Donna Brewington White

      AFTER the negotiation.

      1. jason wright

        i don’t negotiate with people i don’t trust

  5. LIAD

    Morty rocks! Never take anything as gospel. Never swallow things verbatim. Asking ‘Why’ is a sign of intelligence. That’s how kids learn and that’s how progress is made.We grow older and fall into the trap of nodding to everything- ‘this is just the way things are done. Accept it’ – SCREW THAT! We’re not lemmings. We shouldn’t blindly walking a path just because others have for decades or even centuries before us.We’re unique. We’re alive. We’re free to question, debate and decide for ourselves.We should never let the fear of ridicule preclude our curiosity or desire to smash someone else’s status quo.


      “We shouldn’t blindly walking a path just because others have for decades or even centuries before us.”Yes, but look how many do it everyday. The sheep are the sheep for a reason.

      1. LIAD

        on the whole, we are all sheep. we just dont know it.

  6. awaldstein

    I love this post.Truth oozes from it. I learned the same lesson from my first boss Jack Tramiel, founder of Commodore Computer who bought Atari Corp for his sons.Toughest , smartest negitiator I have ever met. Took awhile thiugh to learn how to apply lessons from negotiating from power to smarts to negotiate as a startup .

  7. JimHirshfield

    Reminds me of a legal/negotiation lesson I learned…and probably shared here on that same post of yours in 2007. “Never negotiate with yourself”…IOW, when the other side says, “That won’t work for us”, don’t just drop your price or or give more product, ask them why and most importantly, ask them to propose something. A sure fire way to know if you’re negotiating with yourself is when you’re making consecutive revisions to an agreement – you never got the other party to counter, you just negotiated with yourself.

  8. Michael Ostendorff

    Excellent points Fred. Here’s what actually are market standard terms in today’s venture financing environment

    1. Richard

      Nice app. Can you offer a premium membership deal for the avc group?

      1. Michael Ostendorff

        Perhaps…….Send me an email and mention this blog post, and I’ll cut you a deal…

  9. Richard

    Every cluase should be given the inefficiency test. Does it clear the road so the startup can focus on its business model ?

  10. Conrad Ross Schulman

    And this is why I visit Avc every morning with’s because Fred provides value and teaches us lessons we can actually learn from and help us grow. I aint never saying “because its standard” ever!#fredwisdom

  11. pointsnfigures

    Transparency rocks.

  12. reece

    like most things, it’s not the “what” it’s the “why”

    1. Matt A. Myers

      This is why clone startups are potentially more risky – since the founders might not understand the why.There are fluke / “lucky” cases too where the founders build something, it goes viral and they don’t understand the why – change something as ‘improvements’ and then kill what they had.

    2. takingpitches

      focusing on the “why” is also a good way of keeping personality out of it, including so that you don’t bend too far or alternatively, so that you don’t push farther than you should or need to.

  13. btrautsc

    this rings true of our personal funding experience as both sides of the table were open to doing something unique… on nearly every aspect, we asked why, we both tried to come up with the right reasons, and we killed the parts of the deal that didn’t align incentives.2.5 years later the relationship has been constantly interesting and an amazing experience.

  14. jeypandian

    I enjoyed this read. I remember when I first started out in SEO in freelancing, agencies would always say this and that were standard and wrote legal documents which favored them and unfairly penalized me. One particular favorite was their ability to cancel the contract while I could not do so – at will or the noncompete.As I grew in expertise, I took a different tack. I negotiated every line which I did not agree with and either had them revised or refused to work with them.Today, I’m thankful that I didn’t let them take me for a free ride. I’ve realized that everything is negotiable. Most people don’t realize this for some reason. The question always becomes, how can you frame yourself in a way that you can negotiate because people will do everything in their power to take you for a ride (most of the time).Cheers,Jey

  15. awaldstein

    Reading this reminds me of the huge gap between good and great lawyers.The great ones give you the data to make your own business decisions and not focus on the extraneous.

  16. John Best

    Love this post. That one reaction flips you instantly from a secure position of “this is how it’s always been done” to having to defend.

  17. JLM

    .In life, we never get what we deserve, we get what we negotiate.Negotiation is to business what putting is to golf.Everybody can’t hit a nice low wind cheating draw that will roll forever, but everyone can chip and putt.In business, everyone can learn how to negotiate effectively.Negotiation is all about preparation just like putting is all about being able to “see” the line and estimate the energy to be imparted to the ball. [Dave Pelz Short Course grad, don’t you know?]Folks think that you have to be a bad ass to be a good negotiator, but if you are thoughtful, prepared and a bit adventurous in a very genteel manner then it is like giving a shave with a straight razor — the potential is always there to draw blood if you slip but if you don’t, well, then you can get one Hell of a shave.The first rule of negotiations: Remember to negotiate.The second rule of negotiations: Give yourself a chance to get lucky.JLM.

    1. awaldstein

      Nicely said from the master.Everyone can learn to be prepared and acquire some poise but some people are just great at this, some will never really be the person you want to have the table listen to.

    2. takingpitches

      you can be a bad-ass negotiator by being the strong (knows exactly what she wants and why), silent type.effectively using silences — especially when negotiating against someone who needs to talk — often leads to that person filling the silence to their detriment with backtracking or other self-defeating babble.

      1. JLM

        .The person who leaves the negotiation feeling the best is the one who was best prepared, knew what they wanted and made immaterial concessions.Never, ever put on airs or artifice. Be perfectly calm and natural and pleasant. Disarmingly so. Waste no energy on being something you are not.Let the other guy be the “smartest guy in the room” and say to him: “Hmmm, I don’t get this can you explain this to me.” Do it time and again until you have unearthed his position on everything.In this manner, you understand what the other person is thinking without revealing what you are thinking. In a gracious and pleasant way.Do not debate any points, just get the info. In this manner, you will often find that your preconceived notions were not correct.Then you start to trade but if done correctly then only you know what trade bait you are throwing on the table.Be so calm that if you have to walk away, there are no bruises. This way you can re-engage again without having to salve anyone’s bruised ego.Always tell the other guy that he kicked your ass and tell his boss the same thing.Then smile all the way to the pay window.JLM.

        1. takingpitches

          yes — in a negotiation, making your counterparty feel good is simultaneously cheap and priceless.recently seen a favorable deal fall apart because the winning party pushed too hard to get the extra nickle. it can be seen by your counterparty as the equivalent of pulling out the sharpie after scoring the TD.

          1. LE

            “recently seen a favorable deal fall apart because the winning party pushed too hard to get the extra nickle.”One of the reasons that not everybody can learn to negotiate anymore than everybody can play guitar or be good at programming or a particular sport. This is a touch and feel type of thing and takes recognizing nuance. Even the people that are born with that learn over time where that line is.

          2. FlavioGomes

            I have found that the most powerful negotiating position is one where you know you can walk away. I’ve heard that line used many times before, but until you find yourself in that position, you can never truly understand how profound it is.

          3. JLM

            .Hell, in life — make everyone feel good.The true hallmark of a gentleman is that people feel comfortable in his company and if they do not, he makes it so.JLM.

          4. CJ

            So many quotes today JLM. You’re on a roll.

          5. robertdesideri

            Like most things in life it’s necessary to determine if you’re dealing with a weasel or a human -the sooner the better. Weasels tend to be non-performers, which means you have to take that into account in your terms.

        2. LE

          “Always tell the other guy that he kicked your ass and tell his boss the same thing.”Look everybody has a different style that works for them. So I am certainly not taking issue with what works for you but merely pointing out my perspective on doing the same. (Which shows how different people approach things differently.)(Also one of the reasons that you can’t learn negotiating from books or reading about it is the same reason you can’t learn sports from books.)Take that statement you just made. I would never ever say something like that to anyone.On the other hand I might act like that happened in certain circumstances. (Add: meaning by emotion or other non verbal clues).To me a statement like that is partronizing and while it might work with the admin assistant or the couple from Kansas who just bought a car at the local dealer it would be viewed quite differently by someone who has a clue. (You might as well just say “hey schmuck I just got the better of this deal”. (Which of course you would never say, would you?)……

          1. JLM

            .You are quite the literalist, LE. Of course, put it in your own words and don’t be afraid to be a bit subtle.”Hey, Joe, thanks for working with me on this. You did a great job and got a great outcome for your client/company, etc.”That’s all you have to say. Drop him a hand written note saying essentially the same thing. Take him out to lunch in a couple of weeks.You see Bob, Joe’s boss, at the country club or church: “Hey, Bob, I had a chat with one of your guys Joe the other day. We were working on a deal together. Nice guy. One of your best?””Yeah, Joe’s a great young guy. We have a lot of faith in Joe. How did he handle himself?””Well, Bob, Joe did a Hell of a job. He represented you well. You should be proud of him. I had to go to the eye doctor afterward — he stole one of my eyeballs.”Subtle, LE. Smooth. But effective.Maybe it’s a Southern thing. Not hard to do.JLM.

          2. LE

            For the sake of the people reading this that are young and impressionable I just wanted to point out that there is a difference between these two statements:One: Always tell the other guy that he kicked your ass and tell his boss the same thing.Two:”Hey, Joe, thanks for working with me on this. You did a great job and got a great outcome for your client/company, etc.”See the difference?But more importantly where you say this “Maybe it’s a Southern thing.” that’s a very important point to consider. The fact is people in different parts of the country can interpret the same thing in different ways. An example is on the east coast, before the internet, when someone called and started a conversation with “hi how are you doing” it was almost certainly someone trying to sell me something. But when the internet came along and phone calls came in from the midwest and other places I quickly found out that people who are buying start off conversations that way!…

          3. JLM

            .Nobody reading this is that young and impressionable. They are all smarter than me and more worldly.Ooops, did I just fool ya’ll again? Sorry.JLM.

        3. Donna Brewington White

          “Waste no energy on being something you are not.”That’s what I am taking away from this. Powerful.Thank you for this advice JLM. It was exciting to read your recent post about how you are spreading the wealth of your knowledge with CEOs via Voomly. http://themusingsofthebigre

          1. JLM

            .Has been great fun. Thanks, DBW.JLM.

        4. robertdesideri

          @jlm, let me add a further thought to “Do not debate any points, just get the info”. My experience is that it’s best to not deal on any points, first discover the entirety of the counterparty’s position. Only then choose the spots where you want to give and get, if you react to anything before you have the whole pic you’re doing yourself and partners a disservice.

          1. JLM

            .I agree more with you than you do with yourself.Trade on everything particularly the stuff you don’t really care about.This is called getting something for nothing.It is one of my favorite concepts in the whole world.JLM.

      2. Donna Brewington White

        One of the most important lessons I ever learned was that when the terms were on the table and you’ve reached an impasse the one who breaks the silence loses the deal (or at least loses ground).Probably ties into the other lesson. The person willing to walk away from the deal has the advantage.The first was really hard for me but very effective.But I like @jlm:disqus ‘s advice. This is more substantive than mere techniques. Knowing exactly where you stand can be powerful.

        1. JLM

          .Never let it get to an impasse?JLM.

          1. CJ

            And never be unwilling to walk away.

        2. JamesHRH

          In my first ever job interview, which was through a family connection, I did not know this rule.However, when asked for an expected salary, I had no idea what to suggest. It was to be EA to the President/CEO/Owner – i could have said $30K or $150K (well, I was fresh out of school and had no experience, let’s say $65K if I was ‘giving myself a chance to get lucky’).When I refused to answer, my about to be new boss said: ” I am paying you, so you have to put the first number on the table.”Its a sub-clause of the golden rule.

          1. Donna Brewington White

            Ha! In the end, was it a good number?

    3. JamesHRH

      Love the putting analogy. So many ballstrikers think it is unfair that they can’t putt……just like people with tons of talent who do not end up being successful.It is what it is – acceptance before ascendence.The words that came to mind when I read Fred’s post were ‘care & attention’. Its pretty obvious that Fred uses this as an example of when he was not meeting the bar on either – Morty was just kind enough to point that out, in what appears to be a typically NYC kind of way!No war stories on bad negotiating from the Big Red Car?

      1. JLM

        .The Big Red Car has a ton of such stories but is careful not to gloat or to get sued. Oh, the stories the BRC could tell.Stay tuned, because I think the BRC will be sharing a few in the days ahead.www.themusingsofthebigredca…JLM.

        1. JamesHRH

          What is the Big Red Car;s opinion on ‘anchored long putters’?Does the BRC play?4 of the last 6 majors have been won my ball hittin’ Jessie’s who are not putting (they are brushing or pendulumming or something.The spirit of one of the grandest game’s is being desecrated, by innovative, performance improving tools – love those things in most settings, but not when it violates the definition of ‘swing’.

          1. JLM

            .Golf is a self policing game for gentlemen in which the purity and sanctity of the game itself is more important than any individual.This is exemplified by folks like Bobby Jones who played the game for its own enjoyment and grandeur and not for filthy lucre. Golf is not a business.It is an insight into a gentleman’s soul as to how he competes fairly and honestly. No mulligans, no moving the ball, no conceding putts.I have never known a man who sought an advantage or took an advantage on the golf course who did not repeat that behavior in the boardroom.People playing long putters are seeking an advantage even if it is available to all. Play the game — rules, equipment, balls — as it was intended to be played. Seek no advantage other than your skill and wit.In the day, The Boss played to a scratch handicap for about a year. This was when The Boss had retired at 45 and he and the Big Red Car had many a merry day touring those lush green parks and knocking the snot out of that defenseless little white ball.The Big Red Car and a bunch of The Boss’s compadres would make a tour to the Dominion in San Antonio on a cold, crisp morning with the top down flying down Tx 281. Ahhh, those were the days.The Boss is threatening to take up the sticks again. We shall see.BRC.

          2. JamesHRH

            Scratch – I believe that puts you in the top 0.1% of all players.I got to a 5 in my mid-20’s (not retired, just single). I am a decimal place to the left of you on this one (likely the only time I get to say that!) – top 1% of anyone who ever plays breaks 80 regularly…

    4. Donna Brewington White

      “Give yourself a chance to get lucky.” Will you elaborate?

      1. JLM

        .People often negotiate themselves out of a better deal because they do not have the audaciousness to just ask for a huge price. Sometimes.I once planned to quote a buyer of a high rise office building a very, very high and dear price.I viewed him as a “user” rather than an “investor”.My colleagues laughed and began to peer under my hairline looking for the lobotomy scars.I said: “Always give yourself a chance to get lucky.”We got lucky. The buyer paid the asking price. We all had a good laugh but everyone got a great lesson.Always give yourself a chance to get lucky.JLM.

        1. Donna Brewington White

          Thank you.Luck is not generally on my side it seems. I wonder if those of us who don’t consider ourselves lucky are also those who sell ourselves short. I’m thinking this may be true.I agonize over those deals that I’ve lost because someone offered a lower fee — and my fees are pretty reasonable because of the audience I’m trying to attract. But @awaldstein:disqus said elsewhere in this thread that “Some deals are not worth getting.” and this rang very, very true.I am having some revelations today. A lot of wealth in this community.Meet you at the pay window.(You know, JLM, I think that some of these thoughts you put out there are brandable.)

          1. JLM

            .The price v quality balance is a real world consideration.I have never negotiated a fee with with a doctor when on the operating table.In almost every instance, you only get what you pay for and nothing more.JLM.

          2. LE

            Another dimension to add to this discussion is whether you would tend to have to deal with the person again (which is a separate issue from your “reputation” even).A deal which is “one off” as opposed to an ongoing relationship has to be dealt with differently than when buying something where what you do in one case won’t have any impact on any future deals or really on anything else. (Say buying a car or getting a car rental or hotel room.)I can think of a few examples of this but the clearest is when dealing, say, with a handyman, plumber, electrician or even the guy who shovels your snow.In that case not only do you generally not want to negotiate but you actually want to pay, pay quickly, and even tip (well not generally the plumber/electrician but for the handyman or snow shoveler.) [1] The reason (if it’s not obvious) is that when you call that person you want fast service from them and you want them to know that your money is good. And you want them to actually show up when they are supposed to and not put another job ahead of your work. And if they make a mistake on pricing or some other error you cut them slack and make up the difference (if you intend to keep using them.).An example of this is a painter that worked years ago as the maintenance man in a building I was in. I hired him “Jack” to paint my place. By accident he made a mistake and used the wrong paint. Instead of making him eat the mistake I bought the extra paint for him (it was clearly his error). He ended up staying at the building for 20 years after that and it was clearly a good thing I had done that since if I hadn’t I would have been paying for that all the time. That said I probably would not have done the same thing for a painter who wasn’t also the maintenance man at the building.[1] Want to point out this clearly depends on circumstances obviously if someone quotes you for an HVAC job you aren’t just going to accept their price and not give it further thought…………..

          3. CJ

            Everyone pads and if they don’t they’re a fool because I negotiate everything – excluding doc fees while on the table, after I’m patched up is another story though.In any case, you should always pad your fee because someone like me is going to negotiate and if you can give me a few bucks while not sacrificing much on your end but the ‘built-in’ padding, then you’ve just made me feel really good for zero cost. And your customers who don’t negotiate pay for those that do…and then some.

          4. LE

            Maybe and maybe not. It depends. One of the problems with doing that is once you give on price people then feel they might be still leaving money on the table. After all how do they know they can’t get more off?A good idea is sometimes to have people think at least that there are others putting in a bid. That usually helps quite a bit with giving someone the motivation to give good pricing I have found. The other thing I used to do quite a bit was to create phantom jobs for people to bid on. They would give a price and then when they followed up (usually only happens with a salesman by the way) I would tell them someone else got the job because their price was cheaper. That created quite a bit of salivation that made them make sure their pricing was better the next time (when there was a real job to bid on).By the way one thing that to me totally telegraphs that someone is willing to pay the price that you are asking for something is when they say [1] “can you do any better”. That almost always means “I will pay what you ask but I was told to try and negotiate so here it goes”.[1] In a certain tone of voice, almost left that out. The exact words and they way it is said is critical…….

          5. CJ

            “One of the problems with doing that is once you give on price people then feel they might be still leaving money on the table. After all how do they know they can’t get more off?”A good deal is one where both people walk away feeling like they got screwed.

          6. ShanaC

            the padding bothers me – why can’t we all get more honest with each other in negotiations

          7. Daman Bahner

            I think it’s a cultural holdover of the perception of getting a deal. As a multi-industry sales professional (knives, credit card terminals, cars, software) I have often encountered clients that are not going to do the deal on initial price, no matter how transparent the good pricing is. So the padding works out for a couple of reasons: 1) It gives room at “zero-cost” to come to an agreeable price and 2) When the padding is left in the deal, it can cover the ubiquitous scope creep involved in many projects.

          8. CJ

            It’s about trust and sales guys historically have always been negotiable on price so everyone who negotiates assumes that they always will be. I have to trust that you aren’t before I can accept the price at face value, even when the value proposition is so good it’s smacking me in the face.

          9. Daman Bahner

            Good point, hard to gauge without transparency in pricing, wholesale vs. retail, all of which are moot on something with the complication of a venture backed deal.

          10. CJ

            Because I have to trust that you’re being honest first. The last negotiation I undertook the sales guy and I were both honest. I knew he didn’t have much money to play with on price and he knew it wasn’t about price with me as much as timing. Turns out he had a timing crunch too which made his price a bit more negotiable It worked because we were honest and we’re good friends now.

          11. JamesHRH

            Similarly, if my arm is on the floor & I would like it back on my body, I really don’t care if the person doing it has the bedside manner of a troll & a God complex.I think I would prefer it, actually.

          12. CJ

            The key to dealing with bad luck is increasing your skill or changing the game to one where skill matters more than luck.

          13. JamesHRH

            Some suppliers are ‘buying jobs’ to stay busy. Its a tough thing to fight off, but you have to do it.

          14. Donna Brewington White

            Hi James. What is “buying jobs”?

          15. JamesHRH

            Pricing the work so low that you know you get it, even if you don’t make money. You ‘buy’ the job by paying for it out of your fees.

        2. Sean Hull

          Yeah. If I learned anything in real estate it’s always try to negotiate.

          1. CJ

            I got a great deal on our house because we bought after the crash and I knew:A)the market was horrible for sellers. B)The seller was a government that was extremely motivated to sell because they had issues with the current lessee (employee of said government)C)It was an old house and had a few flaws.I came in with an offer $60k+ under asking. We negotiated and I got the place for just a hair over $50k under ask.My Agent thought I was nuts to lowball but I knew we were in the drivers seat as we had money and they only had a house. Everyone had houses, but not everyone had money.

          2. JLM

            .Killer. Instinct.JLM.

          3. Sean Hull

            Wish NYC was like that. At the moment there are a lot of all-cash buyers shopping around. They offer some over the ask price…

          4. CJ

            Well I bought almost 2 years ago when buyers were scarce and everyone thought the world was ending. Gives you a bit of leverage. :-)Plus I think NYC is one of the only places that WASN’T hit by the downturn.

          5. Sean Hull

            Yeah it seems NYC RE has been very resilient. Btw, do you know any sites that track population stats for NYC boros? It seems a ton of new inventory & apartment capacity is being built in wburg at the moment. My hesitation is that it’ll all come online right around when I start renting out the second unit in a multi-family I’m trying to find.

          6. CJ

            I don’t as I’m in the Chicago area. 🙂 But with NYC I think you’ll be fine either way.

          7. Sean Hull

            Yeah as a general trend, I have a lot of faith in NYC real estate. Great public transport and very safe.

    5. CJ

      “The first rule of negotiations: Remember to negotiate.”It’s amazing how many people forget this rule.

    6. ShanaC

      I could have sworn you rewrote yourself

    7. Matt A. Myers

      Oh wow – I like golf more now. I’ve never actually played a round, or whatever you call it – though I figure with my body awareness from yoga, etc. I should be able to fair well. And you just reminded me of an email I need to send. 🙂

    8. Scott Barnett

      “don’t negotiate with yourself”

  18. Ryan Laubscher

    I love this post because the principle espoused here actually relates not just to the process of negotiation, but also to the wider reason as to why we are all involved in this business:Standard is only Standard until you get a Disruption that resets the Standard.

  19. Anne Libby

    One instance where I’d disagree: never negotiate for the salary you “need”. (A salary negotiation point that young people, particularly women, do well to learn.)

    1. JLM

      .Negotiating compensation is an easy art to master.A good compensation package includes salary, benefits, short term incentive comp, long term incentive comp and “something special”.Don’t get wrapped in your underwear about the salary — just say it has to be “market” or “market plus x%” in order to get you to sign.Nibble on the salary component by getting agreed upon future increases based on an agreed annual increase, market conditions, inflation or cost of living. Simple stuff.Get good benefits and value them fairly. Health/dental/vision/life insurance, matching 401K, SEPP, cafeteria 125, ESOP, ESPP, vacation time, sick days, prof dev days, etc. Make your own special package.Craft short term incentive comp which settles in money — a bonus program.Craft a long term incentive comp which settles in stock.Get some special stuff — social/professional memberships, reimbursement for all things Internet, great computer gear, phone, digital camera, car allowance, events (SXSW) and other simple but necessary stuff that is going to otherwise cost you $$$.When you add it up — wow. Nibble your way to riches.JLM.

      1. awaldstein

        When equity is a large part of the package it gets more complex. Accelerated vesting, including all the stuff around change of control/acquisition are always a challenge to negotiate against a future that doesn’t exist as yet.

        1. JLM

          .Amen, Arnold. Change of control provisions are a critical consideration for C level executives.JLM.

    2. Donna Brewington White

      I read a very interesting article on salary negotiation recently titled “The secret to a higher salary is to ask for nothing at all” I made the mistake of sharing it on Facebook where my crowd there reads titles and runs with them without reading the content. Oy.

      1. Anne Libby

        Donna, that’s a fascinating article. Thanks for sharing it.

      2. ShanaC

        i wish job applications didn’t require it

        1. Donna Brewington White

          Any experience that I have with job applications is quite dated, but unless things have changed dramatically, you should be able to state something like “open” “negotiable” or “TBD”Often the question is used just to make sure you are in the ballpark of their range. Occasionally, it is used to make value judgments.You can go on or to find out the going rate for a particular job and give a range using this number as a guide.

          1. ShanaC

            Nope. Sometimes they require it in order to proceed with an application

  20. Alan Mendelevich

    Just had a similar situation, but instead of “standard” the other side said “because we already did X deals with this provision”. To that I answered that this is 1 out of 1 for me and I’m not signing it unless I understand the reasoning behind it.

    1. Michael Ostendorff

      Way to stand your ground!

    2. awaldstein

      Not all deals are worth getting. Remember that and everything else falls in place.I’ve signed deals at a loss to me with no economic upside, even loss but was aware of the why of it on signing.

      1. Donna Brewington White

        “Not all deals are worth getting.” Another great takeaway.

      2. Peter Fleckenstein

        Amen! I walked away from a huge deal with a huge company. Well sort of…I found out the SVP who I was negotiating a deal with had given my proposal to another company owned by his friend. It took 2 months to do & we did some pro-bono consulting for it.I called the COO of the company at the end of the day knowing he would not be there. I had done some high level strategy consulting with him previously and we had a good relationship.I left him this voicemail – Hi ______ this is Pete. I’m really sorry but after all the hard work & effort we put into this proposal I’ve just found out that’s it’s probably going to be given to another company. I wish you and ________(SVP) all the luck and success in the world but we are pulling our proposal effective immediately.I have to tell you I was scared out of my mind to do this. I didn’t tell my boss I was going to do this. This was a profitable deal on both sides. We stood to make a lot of cash on this one. If we lost this deal then I was getting door number 2 with the camel behind it waitng to spit in my face.Got a call an hour and a half after I left the vm. It was the COO who, in what I recognize now as the Morty tone, said:”The f*ck you are! We put in a lot of effort with you guys ourselves! Now have your ass in here early a.m. so we can get the deal done.”Mr. Waldenstein is absolutely correct – Not all deals are worth getting… and you might just get one if you do! 😉

  21. Henry Chalian

    And this goes beyond just the ‘Start-up’ world and applies to life in general – one could even say the world would be a better place … and I always used to actually read contracts and amendments to agreements in my past career in insurance and banking and ask questions. The lawyers would flip out and sometimes became speechless —–> they didn’t even know why ….

  22. baba12

    I wonder if Mr.Wilson (aka Fred) would feel to state if in his experience, over time and experience he and USV have learned to be able to negotiate a fair deal. I always feel that conversations like the one Morty had with Fred, stem from a feeling that whatever is being negotiated is not fair to one side or the other.Is it possible that through time one has evolved to make fairer deals. Now what is defined as “fair” is all very relative to each and everyone but I believe that in life when someone states to me “this is a great deal, please sign it/accept it” I tend to let them know that in my experience in life there are no great deals, one can only hope for a fair deal.Would Mr.Wilson think that USV makes fair deals or would he state that it is up to the other side to make sure they are getting a fair deal, i.e stating transparently what is generally hidden in many contracts.

    1. JLM

      .Is fair really a consideration when you are making a deal; or, is it important when you are confronting something that was not contemplated in the deal initially?Fair is most important when the deal is underway. Until then, who cares whether the documents lay out a fair deal?Everyone thinks they make a “fair” deal but not everybody is a “fair dealer” when the feathers hit the fan.JLM.

      1. baba12

        well said, is it a consideration you ask, I would say, not having the ability to fathom what maybe in the deal is where the side that has the experience has an ethical responsibility o be upfront and transparent as to how they are presenting the deal. I believe it is ok to state clearly that this deal is not fair to the other side but given the circumstances it is up to the other side to accept it or not. Many a time the deal is presented as being the best possible deal for the other side when that is never the truth.The hope is that people evolve and don’t wish to be surreptitiously unscrupulous.

        1. JLM

          .The most important decision you will ever make in business is with whom you will do business — either as a partner, an employee, a recipient of services or as your client.Most. Important. Decision.Give me a great partner and we will multiple our efforts a hundred fold.If I have to come to work and worry about what the snake in the next office is up to — lost energy, no multiplier and fail.Associate with good people who multiply your energy. Stay away from the energy sucks.JLM.

          1. Peter Fleckenstein

            “The most important decision you will ever make in business is with whom you will do business — either as a partner, an employee, a recipient of services or as your client.Most. Important. Decision.”Printing that now and putting it on my wall. That is Gospel of the Highest Order. I can speak from experience. Thanks JLM!

          2. Jeff Bodle

            I agree 100% with this. If faced with an investor friendly term sheet with a trusted investor/partner than a company friendly contract with a jerk of an investor I would always advice to choose the trusted partner as in my view the most important decision is who you are going to bed with not how the docs read as the docs can change over time as leverage and circumstances change.But almost always in my experience the friendlier docs come from valued investors although there are some investors who are very value add and great partners who have been burned and so stick to their guns on certain points.


        “I think fair should be a consideration any time the deal isnt’ a drive by dealing”. So, a guy told a story where he negotiated the lowest price from a vendor. He said he felt good that he really beat up the vendor to get the best price. But after that the vendor wouldn’t deal with him anymore. So he lost out on more profits in the future..If a deal isn’t fair then one of the parties is being taken advantage of. If its a drive by dealing where no real relationship is being developed then I guess if someone is that type of person so be it..Maybe it’s the whole win/win thinking. Try to make every deal a win/win so that you won’t be screwed/screwed if you want to do another deal later.


          I don’t know why the first sentence posted quoted?


      “I always feel that conversations like the one Morty had with Fred, stem from a feeling that whatever is being negotiated is not fair to one side or the other.”Good point. But that’s not always the case. There are people who are always behaving as if something is wrong and they need to be on guard.

      1. baba12

        generally in places like India amongst the trading class ( they are a caste i.e. called the Vaishya’s( north indians call them baniya’s ) they are known to always doubt that something is wrong and they need to be on guard as these are the same folks who also will find ways to screw the other person(s) over if they can, so they come to believe that the other side is also going to be just like them.Such is the world we live. Oh well the term “buyer beware” is something that must have come from such transactions of the past..

  23. Tom Labus

    Morty is saying what most people want to say but feel too intimidated

    1. FlavioGomes

      if you don’t feel queasy…then either you didn’t go to high or low enough.

  24. LE

    “Explain why you need it and most of the time you”Would like to point out (if this isn’t obvious) that I would never generally address anything unless asked. Otherwise you are just giving an opening to a potential can of worms. Not only that but it’s much stronger if someone asks and you reply with a reason then if you simply offer a reason. Once again, no hard and fast rule and depends on the circumstances.

  25. Steven Kane

    Amen brother Fred. (which is what I think I also commented in 2007. sorry too lazy to go look)

  26. LE

    “I weakly explained that if the deal goes sideways”Sometimes it pays to schedule the negotiation when the other party is weaker mentally and physically. Like after dinner, some liquor or even after they have eaten big lunch (without you). Some people get low blood sugar after eating and it definitely affects their mental judgement and stamina. They are more likely to give in on certain items when they have been worn out and aren’t as fresh and ready to go.One of the things that Morty was doing most likely was specifically trying to wear you down by asking everything and anything and potentially things that he even knew the answer to in order to weaken you. (Flipped – on the other side there are cases where you purposely put many things that you know you don’t even want and will never get so the other side gets weakened trying to play whack a mole and has less energy to focus on what they really want. Once again, all depends.)…..

  27. Chris Phenner

    I LOVED THIS POST and I have thought about it many times. I hear Morty’s pull quote every time I hear ‘standard’ invoked as the basis for a term’s existence, even though I say nothing of the sort (it’s usually not worth it).Another framing of the issue is that if you are negotiating and invoking the word ‘standard’ as the basis for your negotiation points, that is really lame.So glad you re-surfaced and re-posted this.

  28. Jeff T.

    These two podcasts from Stanford are excellent to listen to about negotiating (and entertaining as well). It is about the ‘why’ and not the ‘what’. I’ve found that the best negotiations happen when you lay our your needs and they lay out there’s and you find mutual ground. Of course, this really only works with people that aren’t out to take all that you have, but I find not doing business with those people much better.http://ecorner.stanford.edu

    1. Donna Brewington White

      Thanks, Jeff.


    That’s a pretty good one Fred. Hard negotiators are usually a red flag. Not just because you are negotiating with them. But when someone is negotiating hard for something. You need to ask yourself, from their point of view, why is this thing so necessary. Is there something going on around this that can hurt us both and I’m the only one that doesn’t see it..For example, if someone is negotiating hard for all types of “outs” to a deal. This should make everyone involved see that this thing is a glass house and could fall apart too easy.

  30. Donna Brewington White

    “Standard” has been a lifelong enemy. Thank God for the Mortys.And thank you @fredwilson:disqus for this post.

  31. Vasudev Ram

    “Nothing is standard.”Great comment, Fred.Each experience or issue should be taken on its own merits, not based on the past.+N.

  32. isaak

    A classic, I’ll be telling it to my kids and grandkids as long as I live :).

    1. fredwilson

      me too Isaak

      1. Jeff Bodle

        The corollary to “because its standard” is “because its market.”I learned this lesson as a first year associate. I was working on a complicated M&A and license transaction and a very clever partner from Cahill Gordon with a softer approach then morty cleaned our clocks as we were in an all hands on negotiating session in a room for 3 days (you could probably do a separate post on negotiation dynamics in the world of email and calls rather than face to face get in a room until its done meetings) and he would ask the GC on every provision in the deal “help me understand why you need this” very politely and then would proceed to box him in a corner and narrow the language to just what the GC needed. If you can’t explain why you need/want something then you need to be prepared to compromise and the baseline is understanding your needs and wants and your bottom line.Awesome post Fred (from long time listener first time caller).

  33. David Fox

    Nice message. I’m pretty new at a public accounting firm. Just because we have it last year (or EVERY prior year, it seems like) may not mean we need it this year. The importance of knowing why you’re doing what you’re doing is sometimes forgotten in the hurry to get things done, but taking a minute to step back and analyze it can sometimes save you time and prevent mistakes.

  34. kumarbshah

    Fred – thanks for posting this. I had a very similar conversation a few hours ago. What is your thought on the redemption option? I understand why investors need it and in emerging markets where liquidity is a concern, this right is especially important. I also understand the need for a redemption right in case of a default (e.g illegal action by entrepreneur). However I also see the entrepreneur’s point of view – we are taking an equity risk in the business, usually take a significant portion of his company during the Series A and will end up asking for a redemption only if we are still in the business after 5-7 years. At that point the execution or exit thesis has not really worked out and the company performance is probably flat or declining – at that stage the company will probably not have the ability to redeem the instrument. In what scenarios have you seen the redemption option being exercised and actually worked?

  35. Dorian Benkoil

    Yep. “Like”. (I see no like button — except on SoundCloud)

  36. Rishi Kumar

    Hey Fred – I just wrote a post about a somewhat similar experience re: “nothing is standard”. It involves our startup’s actual experience with an MBA competition called VCIC.

  37. Scott Barnett

    I used to hate hearing this from customers as well – and I don’t think I ever used Morty’s exact language as a response…. I will now 🙂

  38. StartupBook

    Sounds like Morty would’ve been a successful negotiator in any line of business — technology or otherwise.

  39. Philip Brown

    Negotiation seems to be one of the skills that is innate. It’s definitely something you can learn, but I think confidence, conviction and being willing to walk away are very important.I love the similarities between poker and business. A good poker player always leaves himself with outs.

  40. iamronen

    I wonder if this train of thought is an invitation for you to stay in touch and maybe even reconsider(?) your motivations and purpose in making an investment. Instead of “automating” (standard) your relationships you take the time to communicate, connect, consider … to actually form a relationship … even if the result is “standard”.