On December 24th, I met with an entrepreneur/ CEO in our offices at Osage. We had issued a term sheet to the CEO’s company the prior week and we were sitting down to see if we could come to terms on valuation and a few other outstanding items. After a good discussion, a recommitment that our interest was sincere, and some good-faith back and forth on the open points, we came to agreement. I blacklined the document, printed two copies, and we both signed. The process was efficient, personal, and connected, and helped me to remember how good it feels to transact with a person versus a phone, printer, scanner, and email.
Early in my career the face to face transaction was common. You learned a lot about people while locked in law firm conference rooms for hours trying to complete a transaction or working though deal covenants. When a transaction closed, it was a celebration. You knew right when it occurred – everyone got up, shook hands, patted each other on the back, and often headed out to have a drink. This allowed personal relationships to develop during the transaction, as counterparties revealed themselves as good people at heart who were arguing and negotiating hard because they were serious about their jobs.
Today, we do so many transactions electronically. Clearly we meet companies face to face, visit their offices, and hold in-person diligence sessions. This is not a hands-off business and never will be. But we transact remotely and often electronically. As a result, the process often becomes far less effective or efficient, as demonstrated by the effort required to simply get all parties on the phone, which often defaults to having the lawyers talk to each other, inevitably driving up the time required to solve simple issues (and thus legal fees). When you do deals remotely, there is almost always a tendency to under-communicate across negotiating parties, resulting in potentially damaging assumptions or overthinking of motivations rather than simply engaging the other party in dialog. This comes from an unhealthy inverse ratio of the amount of time spent with your own team versus the amount of time speaking with the people with whom you are doing a deal. In an operating model like venture, you spend years working closely with the founders / management with whom you negotiate a deal, and should thus view the structuring of the deal itself as an opportunity to establish the foundation of that relationship. Structuring, negotiating, and ultimately signing and completing a transaction remotely is a lost opportunity to build a strong relationship and to learn more about the people with whom you will be partnering.
So – am I going to change my behavior? Well, I am going to try. This is my New Year’s resolution. I am going to focus on face-to-face transactions. When it is not hugely impractical, I am going to negotiate term sheets and other key deal terms in person. When it is time to sign and to fund, I want to be in the room with the company leadership either at our law firm or at theirs. Sure – take it all into escrow awaiting the filing with the state – I’ll take the management for a meal or a drink. When we sell the company, I want to be sitting in the room with the management team and the attorneys, celebrating how much value they have created and how they have just changed their lives. Will this be inconvenient at times? You bet it will be. But remember – business is personal and milestones are to be savored. For me it’s back to the future and face-to-face.