JV Negotiation
Hey guys, I've been put in a position to help negotiate a JV deal with a growth-stage company we are planning to invest in from our VC fund. I've had a little bit of experience doing something similar in my activist days at a hedge fund, but not nearly enough to lead the process. Other than skimming through other term sheets that may be publicly available on EDGAR or privately within your firm, what other sources do you use to help negotiate a proper contract? I'll primarily be negotiating a licensing deal where my company produces a product that this company is currently producing through a 3rd party manufacturer.
I do have my director helping me out, but I thought this would be a great opportunity for me to take a lead.
Your best bet might be to speak to your in-house / external counsel. Unless your doing something really unique they should be able to tell you the main commercial aspects you’ll need to decide / negotiate on.
Thanks, franco.
I think looping in our counsel in the email thread would be helpful so that he/she can jump in with any comments. At the same time, my experience with legal counsel has been mostly one where you go to them for approvals, rather than suggestions.
That’s a shame. It can depend on the quality of the counsel. I was lucky to have very commercial lawyers (as well as colleagues) to learn from.
Very lucky. Having an experienced lawyer on your team could add so much. Some of the deal structures they come up with are absolutely genius. The counterparty takes weeks to get back to you haha.
You need to decide on business terms including promotes and whether they're based on a sliding scale or not, expense carve outs, management fees, etc and how all that flows through the waterfall. What the proportion of capital investment into the JV will be for each side, who ultimately is responsible for day to day management. JV structure is also important, if you go with an LLC you'll need to have everything audited, probably decide on a third party valuation consultant. Duration of the JV, exit rights, etc. But the main things I'd focus on are mainly capital contribution / ownership split, promote, and structure. Everything else takes a back seat until thats decided on.
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