$0.00 – $6.50
Nicholas Sabin
Two-party term sheet negotiation between a venture capitalist and the founder of an aerospace start-up company in which participants are scored both on their substantive performance and on the other party's perception of the relationship
OVERVIEW:
This is a two-person scored negotiation simulation involving a venture capital investment. Individuals are scored on their ability to attain favorable investment terms for themselves and on the quality of the relationship they develop with their potential business partner. The simulation introduces the incorporation of process and relationship interests into negotiation strategy. Relationship-straining conflict has been purposefully included in the negotiation to assess students’ ability to deal with difficult demands while maintaining a positive relationship.
The venture capital (VC) firm Aerovent Capital is considering a $100 million investment in the startup company Earth Escape. The founder of Earth Escape and the lead partner from Aerovent Capital must negotiate a term sheet outlining eight significant terms of the investment. Both parties are concerned with structuring a deal that protects their substantive investment interests and with creating a positive foundation for their potential collaboration. Thus, both individuals are scored on their ability to negotiate favorable investment terms for themselves and on the quality of the relationship they develop with their potential business partner. Each negotiator’s Total Score is a sum of Substantive Points, awarded according to the agreed-upon terms of the investment, and Process Points, awarded according to each partner’s perception of the negotiation process.
The eight negotiable terms of the investment constituting the Substantive Points include: VC equity percentage, type of stock, dividends, antidilution rights, number of VC-appointed board members, vesting of the founder’s shares, CEO replacement provision, and “no shop” provision. The confidential instructions for the venture capitalist and founder outline specific point values and resistance points for each term. Both parties’ BATNAs (Best Alternative To a Negotiated Agreement) are described and quantified. After the term sheet has been agreed upon, the VC and the founder independently fill out questionnaires that ask them to evaluate each other on five attributes to determine the amount of Process Points they are awarded. These attributes serve as proxies for assessing the future of the business relationship based on their experiences during the negotiation. Both negotiators aim to maximize their individual Total Scores. Familiarity with venture capital investing is not a prerequisite for this simulation.
You can see the Aerospace Investment negotiation game being played by participants in this short, two-part video. Part A:
And Part B:
MATERIALS:
Participant materials include:
- General Instructions for both parties
Confidential materials for Venture Capitalist, including:
- Confidential Instructions
- Confidential score sheet
- Process evaluation of the Founder
Confidential materials for the Founder of Earth Escape, including:
- Confidential instructions
- Confidential score sheet
- Process evaluation of the Venture Capitalist
Teacher's Package includes:
- All of the above
- Teaching Note
- Results and Analysis by Professor Gordon Kaufman from his 2010 course
Aerospace Investment Attributes
| Time required: | 2-3 hours |
|---|---|
| Number of participants: | 2 |
| Teams involved: | no |
| Agent present: | none |
| Neutral third party present: | none |
| Scoreable: | Yes |
| Teaching notes available: | Yes |
