To give students and entrepreneurs a framework to guide their term-sheet negotiations with Venture Capitalists.

This note combines vignettes and scholarly research to outline the cognitive biases and decision-making strategies that influence key decisions in the founding process. It is argued that the same biases which provide early benefits can later prove to be a weakness for the startup, and that founders must learn to identify their biases and work to balance them out with sound advice and dispassionate analysis.

This note offers a new approach to Venture Capital term-sheet negotiations, with actionable steps based on insights from Prof. Wasserman's "Rich-vs.-King" approach to founder decisions. A core thesis of this note is that trying to negotiate all terms in a term sheet will be less effective than focusing on the terms that are most important to the specific entrepreneur in question, taking into account the entrepreneur's goals and motivations in founding the venture. In particular, terms that are higher-priority to a control-motivated "King" founder are often lower-priority to a wealth-motivated "Rich" founder, and vice versa. Thus, this note identifies the most common terms that differ in their importance to different types of founders, and provides a framework for weighing the relative importance of each potential term sheet outcome for their specific type.

It had taken Phil Knight sixteen long years to build Nike into the number one athletic-shoe company in the country. When Knight had first conceived of the company for an MBA class project, Adidas had had more than 80% market share, but Knight's marketing approach had revolutionized the industry, his company had developed several ground-breaking shoe technologies, and Nike's brand had become one of the most recognizable in the world. In 1980, the same year that Nike had knocked Adidas off its throne, Nike had gone public and Knight, its founder-CEO, still owned close to half of the company. He had led the company through dramatic changes as it evolved from a scrappy start-up to a large public company. However, now, barely half a decade later, Knight had just received the news that Nike itself had been dethroned by Reebok, an upstart competitor. Knight closeted himself in his office, faced the wall, and sat there, weak and sick and devastated for hours.