Cofounder management

It turns out that before founders ever have to manage employees, they have to manage one another. In fact, at the earliest stages of a company, when it's just two or three founders, bad management generally leads to the death of the startup. This kind of management also happens to be really hard.

Despite how important and difficult managing your cofounders is, most of the management advice I've seen is about managing employees or superiors. That's useful, but not at first. What I have read about this stage of management is structured as "treat this as a relationship." That's true, but also general enough as to be only somewhat helpful.

Managing cofounders is hard for a number of reasons:

  1. Initially, there are no clear lines of direct reporting amongst cofounding teams. One cofounder may be the CEO, but that doesn't mean that that person is the best manager or the best suited to lead engineering, sales, or product.
  2. Cofounders rarely have experience managing anyone or anything. They're learning at the same time as running a startup. There are a lot of good ways to manage, but they take time to learn and practice.
  3. Cofounders often think they don't need management because they're all on the same team, working towards the same goals.
  4. Startups are high pressure, and pressure makes people make bad decisions and lose their tempers. Small mistakes get magnified 
  5. Communication is much harder than you'd expect, even when there's just two people.
  6. Deciding to start a company from scratch with the goal of building a billion dollar business takes ego. As a result, founders often have large egos. With every success or piece of publicity, egos get inflated. Failures, public and private can deflate egos, and beat people up emotionally. That roller coaster creates tension, frayed nerves, and fighting.
  7. Divisions of responsibility are often unclear. That can result in turf wars, feelings of encroachment and micromanagement.
  8. Decision making in small teams of equals can be hard, especially when there are disagreements, which are often passionate.

There are many other factors that can introduce difficulties into cofounder management. Fortunately, the set of solutions is significantly smaller than the problem set. These problems stem from root causes which can be dealt with more simply than addressing the various expressions of those causes.

Open communication is the single most important factor in creating a good working atmosphere and provides the scaffold for everything else. It's significantly more important than cofounders liking one another. It is not enough for cofounders to agree to communicate, and generally inadequate for them to talk when the need arises. Cofounders need to establish regular check ins with one another to talk about issues at the company and with one another.

It is often helpful to have these types of conversations away from the office, especially once there are employees. Moving these conversations away from the office limits interruptions and also takes a lot of the psychological tension out of the conversations, especially the difficult ones. My cofounders and I were lucky here. We had a coffeeshop next door, a restaurant downstairs, and a bar across the street. Each came in handy, depending on the intensity of the conversation. We did, however, realize (a bit later than we should have) that disappearing from a tiny office too frequently during the day was a bad idea and hurt morale for the rest of the company. If you find that you can't have these types of honest talks with your cofounders, even out of the office, you're in trouble.

At the earliest stage of a startup, when an idea is morphing into a company, you'll probably have the first of your difficult conversations: you and your cofounders need to divide responsibilities and assign ownership of goals and the tasks that need to be accomplished to achieve those goals. Final decision authority has to be established for individual areas and for company wide decisions. Some of this will rest with the CEO, some of it with the head of product, engineering, or sales. Those roles might be filled by the the same person, but the responsibility flows through the role, not the person.

Remember that this conversation can get contentious if people feel they are being cut out of decisions they believe they should own. It is really hard to cede authority, but it has to happen in order to create a manageable strucutre.

Talk about these issues early, write down your decisions, and regularly review them.

Part of the reason you need to divide ownership of responsibilities early is to set expectations for yourself and your cofounders. Managing cofounders isn't easy, and you shouldn't expect it to be. When you're fighting over who has final say on product decisions, you'll discover just how hard it can be. One of my cofounders and I used to have shouting matches when I acted unilaterally on product without informing him. While he agreed that I had final say, I had failed to convincingly communicate my reasoning to him, and failed to set the right expectation of how product decisions would be made.

The truth is, finding out just how hard managing can be is one of the biggest shocks of working with other people. Having a reasonable set of expectations about it will help. Knowing, ahead of time, that you'll fight, get pissed off, and struggle, puts each of those events in a context that makes sense. Having strategies to work through each of those events means that those events (hopefully) won't destroy your company.

While you'll find some of your own strategies, it's a waste of time to come up with them completely on your own. Management is as much a repeatable and proven process as it is an expression of personal style. The process aspects can largely be adapted from general management literature, but I've always found it more useful to engage with a trusted mentor. In the best case scenario, this mentor is trusted by all the cofounders so that they're learning the same lessons and can use the mentor as an impartial arbiter when needed.

Finding a good mentor is tricky. Doing YC will give you access to some great ones, but certainly isn't the only way. Ideally, you want to find someone who has been through the situations that you're going to experience. You should also expect to need several mentors at different points in your career. The mentor advising you at the earliest stages might not be the person you want when each founder is responsible for dozens or hundreds of employees. The challenges you'll face will be different, as will the advice.

Even with this framework in place, managing your cofounders is rarely easy and invariably gets harder as the company grows and pressures rise. The pressures get amplified even more when things start going wrong, as they always do. You'll fight about important things, and you'll fight about seemingly inconsequential things. That's all ok and quite mundane. Just make sure you keep talking about it, adapting, and moving your company forward. Your goal shouldn't be to make your relationship with your cofounders easier. Your goal is to make the relationship manageable.


Someone else had your idea first

"I liked Jimi Hendrix's record of this and ever since he died I've being doing it that way..."

- Bob Dylan, on Jimi Hendrix's cover of All Along the Watchtower

Most people are very lazy. They don't want to take the time to think through new ideas or look at them in a new light. Once they've made up their minds about something, they don't change them. That's generally why most people don't come up with ideas for new or great things.

This is also true for many venture capitalists. In fact, it's at the root of a very common question that founders get asked: "Well, isn't so and so doing this?" To be fair, this question isn't necessarily sparked by laziness. It's also sparked by ego - the VC wants to show how familiar they are with the market. They say "Look! I know about things and there's someone else who had the same idea you had." The implicit criticism here is that, because someone else had the idea first, your idea is somehow worse.

I think part of the reason that people ask this question as a way of putting founders down is that they assume that startups are zero sum. That's an assumption born in certain models of markets, but it's completely wrong when looking at startups. Because startups create new value, the idea that someone else has done or is doing something similar to what you're doing often acts to broaden or prove the market you're attacking.

That's not to say that directly cloning another company is a great idea. If you have no differentiation and no original thinking on a problem, then you have to fall to one of two arguments: a) the market for a given idea is so large that there's room for multiple players executing well or b) the other company is so bad at executing that they'll self destruct. They're both potentially valid, but they're hard cases to make - especially at the early stages of a company.

Even though the question might seem dumb, it's one of my favorites. It's also a great question to get as a founder. I ask it of almost every founder I meet, because it's very rare to find a truly new idea. The answer I'm looking for is nearly always "of course someone else has tried this before." But that's not enough. The question begs for a deeper answer, one that talks about why, even though other people have tried the same idea, they're still leaving billions of dollars on the table. It's an opportunity to demonstrate depth of thought and originality. It's that framework of thinking and level of insight that makes greatness.

We're all communication hoarders

In April of 2004, Google announced that its Gmail product would give users 1 gigabyte of free storage. At the time, Hotmail offered users 2 megabytes and Yahoo offered 4 megabytes. I'm guessing I initially accessed my invite via PINE, and found the idea of using a full gig of storage for email to be crazy. Unsure what I'd ever do with all that space, I initially used it as a remote backup for my thesis.[1]

Ten years later, I have nearly 12 gigs of saved email - and I delete quite a lot. Like a family in a too large home, I hold on to messages I'll never need again for two reasons: 1) the cognitive energy to decide to destroy something forever is greater than the energy needed to put it out of sight for the time being and 2) Gmail's UX actively pushes me to archive rather than to delete. This principle extends across nearly all the communication mediums with which I interact. It is more difficult to delete pictures than to upgrade storage, more difficult to delete texts rather than keep them, and to accept social connections than deny them. In each case, my desire to save against the future wins out against the knowledge that, in all likelihood, the vast majority of what I save will never be useful to me.

This is a strange place in which to find myself. I don't like keeping extraneous items around. To be sure, part of that is a function of living in a NYC apartment with little room to spare. As opposed to my apartment, though, I can assume that my storage space is effectively infinite. Yahoo already offers infinite storage to its mail customers, and it's likely that the other players will follow suit over time. This makes sense when you consider two factors. First: how cheap storage space has actually become.[2]

Second: the data contained in my communication is more valuable to my email provider than what I'd pay for the space.[3] It is unsurprising that I'm given an ever larger shoebox to fill. With no obvious cost to keeping everything around, that's exactly what I start to do.

And that leads to a paradox. The more of my communication I keep, the less each piece means to me. It feels like I'm losing something as a result, even as I gain a trove with massive potential meaning. My wife's grandfather was in Paris during WWII with the US Army. In the two years he was away, his wife had their first child - an event he only discovered weeks later via mail. The letters they wrote one another are unbelievable historical artifacts that shape their and our understanding of them and the world.[4] Of all the things they could have saved throughout 73 years of marriage (and counting), they made the conscious decision to save these items. That decision is a key part of how we know their importance.

My kids and grandkids won't have the experience of reading letters that my wife and I have saved in the same way, because we save everything by default. It's entirely possible they'll have nothing since my email account will most likely be locked when I die. That doesn't mean that all this communication I generate has no value or meaning. It is hugely valuable, in aggregate, to Google and Apple and Facebook. They'll continue to have access to my information long after I die, and it will continue to feed their algorithms.

I don't properly know what I'm losing by gaining so many individual pieces of communication. I do know, however, that the pace at which we communicate continues to accelerate, and that the forms through which we communicate continue to evolve.[5] The ways that expanding body of communication gets mined for information are proliferating at the same pace, but so far, they're almost entirely geared towards the companies that make money off our data.

I think that leaves something on the table. There's a class of product yet to be successfully created that can sift through all of my communication, across all platforms, that finds what is actually meaningful. I don't just want the first message that said "I love you" to my wife, I want the letter or email that led to that conversation. I want to be able to find the text which, on the surface, was meaningless, but in another time I would have set aside as an important life marker. While I can manipulate my inbox search to find some of these things, I can't really find the meaningful things. Maybe Google already does this to serve me ads, but that doesn't really help me.

Then again, maybe I'm thinking about communication all wrong. Maybe it should only have meaning in the instant it is made because that's a better fit for our brains. Or maybe we haven't figured it out yet. That feels more accurate to me, and I'm looking forward to seeing what comes next.

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[1] Pretty sure I wasn't thinking of "cloud storage" at the time.

[2] Chart courtesy of ZDNent. "Thailand Hard Drive Crisis" is my new favorite chart annotation.

[3] I've talked about this cost/persona data trade off before: http://www.aaronkharris.com/tanstaafl

[4] We're lucky enough to still have Pops and Grandma Lil telling us stories. Grandma Lil also still has some of the perfume Pops bought her with bartered champagne and cigarettes.

[5] I recall being in Scotland in 2005 and being confused at the popularity of texting. It seemed so strange and foreign at the time. Considering the average American 18-24 was sending 3200 texts a month in 2011, I think I got that one really wrong.

TANSTAAFL

At some point the internet tricked us into thinking we could get something for nothing.

More than any other company, Google is responsible for fooling us. It was the first free and legal service to gain ubiquity.[1] Google told us that we didn't have to pay anything for amazing services. It seemed to good to be true. It was and is, in fact, too good to be true.

What Google doesn't come out and say is that you're paying, a lot, just not with cash. Your data is valuable. Apparently, it's more valuable than charging you for services because you cannot choose to pay for personal Google services and avoid the sale of your data.

This means data, at least what we contribute when properly sifted, aggregated, and analyzed, is more valuable than the cash we'd be willing to pay for access to the same services. When the world is based on networks, as ours increasingly is, then the greatest network is the most valuable asset there is. By making network access look free, Google managed to capture a huge user base. Once it had the network, it started to charge. It cleverly adapted an existing model - advertising - but did it by selling data + access, rather than just access (which is the best radio and tv and newspaper essentially could really do).

If that's true, we need to ask if we're getting a fair deal. But most of us won't ask that question[2], and if we do, we have no alternatives of the same quality. The deal also keeps getting re-traded, without our truly informed consent.[3] Every time Google offers a new service, it collects more data about it's users. That data is valuable on it's own, and makes existing data more profitable. Users could get some sense of the data collected and how it will be used by scrutinizing ever longer legal documents - but that's hugely unlikely. And, again, even if users did just that and found the trade wanting, there's not much recourse.

And if we did want to pay? Mary Meeker's 2014 Internet Trends Report tells us how much our favorite services should cost. Google revenues wouldn't change if we each paid $45 for all of our free services.[4] To grow revenue, Google would have to release new services and charge for them.

That probably sounds crazy, but it isn't - it's roughly how Apple works.[5]

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[1] Napster is another important player in this story. It largely convinced a huge portion of internet users that piracy was ok because it was so easy.

[2] There are a lot of causes: laziness, ignorance, fear of complexity or awareness.

[3] Clicking "yes" on new terms and conditions hardly seems to suffice.

[4] This number is broadly indicative though likely skewed by the differences in data value between spenders with different geographies, socio-economic brackets, and histories.

[5] I've been thinking a lot about the way these two businesses work at the opposite ends of this spectrum. It's a fascinating dichotomy.

Pet Theories

All investors have pet theories. They may call these theories "theses" or "themes," but they boil down to the same thing - closely grouped sets of ideas which the investors want to be true. Investors will usually fund companies that seem to stand a chance of making these ideas real. At YC, we have quite a lot of pet theories, which end up getting expressed through our RFS.

Knowing the pet theories of the investors with whom you're talking is helpful. They may be more likely to fund startups that fit into pet theories and are likely to know a lot more about those theories than they do about other fields. That's great if you know what you're doing, but dangerous if you're half-assedly working on something. Let's assume you're in the first camp, because the second group shouldn't be talking to investors anyway.

You can learn a lot about the pet theories of investors by reading what they've written or spoken about in the past. Some investors - Fred Wilson, Andy Weissman, Chris Dixon - make this easy by writing blog posts that frequently reference what they think about and why they make the investments that they do. Other investors work at firms dedicated exclusively to particular pet theories. You can learn still more looking at an investor's career and past investments.[1] These are all pieces of information that can teach you about how an investor thinks, which will allow you to prepare better for actually meeting them.

Knowing an investors' pet theories can also help you get a meeting. An email directly referencing something near and dear to an investor's heart will get a response much more easily than something generic.[2] At the same time, the hurdle for getting a meeting on a pet theory is going to be high because the investor has likely seen many teams and ideas in the space.[3]

The really cool thing about meeting with someone who has a pet theory about what you're working on is that you won't really pitch them, you'll have a real conversation focused on the heart of what you're doing. These investors will be unlikely to ask simple, surface level questions. You'll be engaged and thinking the whole time, which should lead to better answers, and the best demonstration of how good you are.

Things will start to get really interesting when you begin to challenge the preconceived notions that an investor has as a result of how much he's thought about a given problem. Chances are that if you're doing something new, this is going to happen. It's where you'll be able to evaluate the quality of the investor. The best of them are flexible. They'll adapt their frameworks in response to new information and knowledge. The worst will be dismissive of ideas they hadn't considered before.[4]

There are also plenty of situations in which someone hasn't thought that deeply about a theory they discuss at length. Maybe they want to sound smart or look cool. Regardless, you should be able to figure that out pretty quickly and move on.

You should learn about an investor's pet theories when deciding if you should talk to them, and when preparing to actually meet. In the end, this is just one of the pieces of information you should have. It isn't as important as building a great business, but understanding the picture will help you pitch better, so spend some time on it.

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[1] Keep in mind, though, that investors generally don't only invest in their pet theories.

[2] This seems so basic, yet I get enough generic emails that I'm convinced it has yet to sink in.

[3] As always, warm intros are an even better bet.

[4] True in all situations, not just those related to pet theories.

Taking advice

I ask for a lot of advice. Maybe too much. Sometimes the advice is great, sometimes it ends up seeming worthless and wrong. Invariably, I attributed the outcome of following advice to the giver - following advice from good people led to good outcomes, and vice versa. In the last few years, I've found myself giving a lot of advice and have realized how wrong I was in attributing cause and effect.

There are two axes that determine the goodness of advice. The first is the obvious one: the quality of the person giving advice. This it the part which most often get discussed. We're told to seek out high quality mentors and advisors. These should be people who think clearly, have experience, have the time to think through problems and help.

While these things might be hard to find in a single person, they're not typically that hard to evaluate. What's much harder, and probably more important, is the other axis: how good you are at describing reality to someone with much less context than you have. It turns out, this is really hard to do for a number of reasons.

  1. Honesty is difficult, especially about issues we're facing. When you ask for advice, you are implicitly saying you don't know how to do something. That's hard, but seems to be accepted. What's much tougher is making sure you know the reasons you're having the issues you're having. Often, figuring this out is the point of advice (even if you started asking for something much more surface level).
  2. Context is hard because it is vast. Think about how much you know about your company. Think about how little anyone else knows, no matter how involved they've been. At best, they see a series of snapshots and can construct a reasonable amount of context themselves. This is nowhere near what you have rattling around in your head. Being able to rapidly construct necessary context is important for an advisor, but they rely on you to give them relevant details.

If you can't pull off these two inputs when asking for advice, you'll get bad advice no matter how good the person on the side is.[1]

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[1] Yes, this does constitute advice, but I'm pretty sure this is of the type that's good in all situations.

The importance of honoring pro-rata agreements

I've recently heard about a number of fundraises in which the company raising has refused to honor pro-rata agreements with early, small investors.[1] The most frequent reason seems to be that newer, larger investors demand a certain percentage in a funding round, and tell founders that it can either come from the founder stake, or by locking out earlier investors. Sometimes they just say "lock out the early investors."

This is bad behavior on a number of levels.

It's bad for the founders to do this because they're violating an existing legal agreement. As a founder, your word is your bond, and going back on a deal is a great way to destroy trust. Unfortunately, there's rarely an immediate/obvious impact because the small investors are unlikely to sue or cause a big stink. They don't want to piss off the big investors or get a reputation for being "troublesome," so they're stuck.

For the early investors, this is really bad. When an early investor negotiates for pro-rata, the money they invest buys equity now, and the opportunity to maintain that equity later. This is critical for early stage investors, especially those investing out of a fund. The cumulative impact of dilution is material and their models and expectations are built with that in mind. Investors would not/should not make certain deals if they knew they were going to get screwed out of their rights. Take a look at this model for a sense of just how important pro-rata rights are to early stage investors.

For the later investors, the behavior is actually pretty smart on several levels. By getting the stake they want from early investors and not the founders they can insure that the founders retain skin in the game (or are given opportunities to sell secondary). They can also weaken the ability of early investors to have a say in the company's future by reducing their combined voting power. Finally, this type of behavior may hasten the end of "super-angel" funds by handicapping their returns. Less competition is a good thing for those left standing.

Given how much competition there is around fundraising at the moment, it's unlikely that this behavior will stop any time soon. At the end of the day, the founders have to make the decision. If you find yourself in this situation, stand up for the agreements you made. If you'd like to discuss how, please reach out.

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[1] Dave McClure recently tweeted that he's seeing the same.

Advice on pitching

We're currently getting ready for demo day at YC, which means quite a lot of pitch practice. Here are the main points of feedback we tend to give to teams. This advice works for almost any kind of presentation you might give.

Speaking

  • Speak slowly and enunciate
  • Be excited. Your pitch should not sound memorized. Intonation, cadence, and projecting help a lot
  • Be specific and concise
  • Look at the audience. You don't have to make eye contact with individuals, just with areas of the crowd. People in those areas will think you've made eye contact with them
  • Don't use generic phrases as transitions ("so...")
  • Actually explain what you do, and do it quickly
  • If you make a large transition, be very clear about it and explain why
  • Don't be "cute" with your points, be declarative
  • If you make a joke, telegraph it. If you're not sure the joke will land, cut it
  • Don't hide the big good things because you are modest, highlight them specifically early on
  • Use natural language and simple sentences, i.e. no sentences with three verbs
  • Don't use words you wouldn't use in normal conversation
  • If an example is a real person, make it clear that you're talking about a real person, not a user model
Charts/metrics
  • Charts should be easy to understand - make one point with any graphic or chart. Don't make people read charts - they'll stop listening to you.
  • If you put up a graph that confuses people, they will feel stupid and stop listening
  • Line graphs are better than bar graphs when showing growth
  • Label your axes and use real numbers - even if they are small. The shape of the graph matters, not the absolute numbers
  • Explain anomalies
  • If you should be generating revenue and then show a different metric, investors will be suspicious
  • TAM should be bottom up, not top down
Slides
  • Titles should describe the slide
  • Slides should be reentrant - each should make sense and make your case individually
  • Remember that minds wander, and people check phones. When they look up, they should immediately be able to pick up the thread
  • Don't use pretty, but thin, fonts. This isn't a time for subtlety, make sure your slides are legible from far away
  • Coolness and legibility are not orthogonal, they're diametrically opposed[1]
  • Screenshot slides are typically bad

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[1] This feels like something PG might have said directly, but I can't honestly remember.

Investor Updates

At YC, we get lots of updates from our alums. There seems to be a correlation between quality and frequency of updates and the goodness of the company and founders. I strongly doubt there's a causal relationship, but I do think it makes sense that the best founders would write good and frequent updates because it reflects their own processes and attention to metrics and consistent growth.

While the act of sending updates is itself valuable, the quality of the update is critical. Writing a good update forces a founder to focus on the right things and keeps your investors engaged and helping.[1] A bad update can reflect the fact that a founder is thinking about the wrong things. When an update is just poorly executed, it doesn't get read, which removes a lot of the value, i.e., getting your investors engaged and staying at the top of their minds when relevant opportunities arise..

Here are some of the most common pieces of advice I give when I see updates that could be improved:

  • Figure out what you're going to report each month - this should probably be your growth (in revenue or users)[2], your cash/burn, what you need from investors and a qualitative measure of how things are going. As your business matures, these metrics may grow and shift, but stay consistent.[3]
  • Send updates monthly. It's a hell of a forcing function, a bit like writing  your growth on the whiteboard every month for everyone to see.
  • Lead with the key metrics and growth rates you defined.
  • Make requests of your investors after you report your key metrics. You could just as easily lead with this.[4]
  • Put the asks higher up so that the investors defintely see them. Key metrics and asks should be front and center to improve your hit rate.
  • Make it shorter. You want your investors to read the whole update and remember what they can do to help, and why they should do it.[5]
  • Charts are nice. They're hugely effective at showing progress in a way words can't.
  • When you finish an update, go back and read it. Does it have relevant data? Does it have your asks? Is it short? If not, rewrite it.

If you hit those points, you're probably all set.It doesn't matter if the update is in a fancy newsletter template or in a plain text email. The act of thinking about it and sending it is what is important, so just get in the habit.

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[1] If your investors think about you positively and frequently, they'll not only help you with specific requests but point serendipitous opportunities your way. That's one way you can "manufacture" luck.

[2] Avoid using "proxy metrics" without the necessary context. For instance, if you report GMV as your core metric, you should report your rake and action revenues. Otherwise, your investors are going to immediately wonder what's going on.

[3] Adding new things because they're important is good. Removing things because you can't hit your milestones is bad.

[4] Pretty sure this is how Chris Dixon advised me to write them.

[5] This can get hard when you have lots of good things to say. If you must include them, put it in an appendix or save it for quarterly or semi-annual updates.

How to create good outcomes when negotiating

When I watch my nieces and nephew negotiating with my siblings, I'm consistently amazed at how good they are. They have an innate grasp of leverage, relevant terms, and they know what they want. That, or they're completely unreasonable and illogical, which frequently amounts to the same thing - they win more frequently than they lose. Near as I can tell this is true of all children.

Founders don't have the same luxury as kids. The stakes are usually higher, the terms are less familiar, and the other party less willing to forgive tantrums. Based on what I've seen, a lot of founders (especially first time founders) don't really know how to negotiate. There's a whole section of the library devoted to negotiating tactics. From what I've seen, the problems founders run into are a lot more basic.

Some advice to avoid the mistakes I've seen:

  1. Know what you want - It's shocking how frequently parties enter into negotiations without a clear understanding of what they each want. If you don't know what you want, it's impossible to know what you can give up and what you need to hold onto.
  2. Understand the terms - This is basic, but generally ignored. If you're signing a document, you need to read it and understand it. If you're going to use terms in negotiations, make sure you know how to use them. This applies to financing terms ("pre", "pro-rata", "control"), employment terms ("vesting", "cliff", "at will"), and essentially anything else you say to the other party.[1]
  3. Do not leave anything to ambiguity - Turns out this is one of the hardest things to do, especially in "friendly" negotiations with investors you know or friends you might be hiring. Don't assume that something you think is implied is agreed upon. Every point that you negotiate should be made explicitly. Which leads to...
  4. Document everything - If you agree to something, confirm it in writing. This can be as simple as an email saying "Thanks for meeting Aaron. As agreed, we're excited to have you investing 100k in our round at $5mm valuation." If the other side confirms, great. Do this immediately because if there's disagreement on what was actually agreed in person, this is how you'll find out. Importantly, silence doesn't count as consent.
  5. Just because the other party is your friend... - Doesn't mean they're going to give you everything you want, or that you should give them everything they want. This is where mixing business and friendship get tricky, so keep in mind that deals are about business. Negotiating with friends is also where ambiguity is most likely to arise, so be extra cautious.
  6. You don't get points for being a jackass - There's a popular misconception that mean people are better negotiators. That's not true. People who are formidable are good negotiators. They're tenacious about the important points, and gracious about the things that don't matter. The key here is to remember that a negotiation tends to be the start of a relationship. You don't want to start that relationship on a bad foot.[2] In most cases, you're also operating in a surprisingly small world. You're going to see the same people again and again, so being on good terms with them is going to be productive.[3]
  7. Your word is your bond - Probably the most important rule there is. If you agree to something, don't break that agreement. Don't even let yourself fall into a place where you might break an agreement. If you agreed to something, whether with a handshake or in writing, the negotiating on that point is done. Reneging is the fastest way to destroy your reputation and any trust that you've built up. If you find yourself unclear if you agreed to something, refer to point 3. This is not the place to get cute or try to re-interpret after the fact. You can be forgiven being confused (up to a point) but not for breaking an agreement you knowingly made.

If you find yourself raising money from an experienced VC or negotiating a contract with an experienced business development lead, keep in mind that they negotiate for a living and are probably better at it than you. They know how to push your buttons to get what they want. This isn't malicious (usually), but it is effective. These are good times to ask a more experienced advisor for advice. Ultimately, you'll have to run the negotiation yourself, but it doesn't hurt to get an outside opinion. If you stick with these guidelines, you'll do alright.

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[1] Maybe it's because I'm married to a lawyer, but I'm continually shocked at how many people sign legal documents without understanding what those documents actually mean. This is how people end up with unexpected board observers, losing voting control, or taking unexpected dilution.

[2] This isn't exactly true when it comes to corporate raiders...

[3] Despite the best intentions, negotiations can get incredibly heated and parties will sometimes feel wronged. That's unavoidable, but it can be mitigated.