Unfortunately for BurnRate the development and testing took longer than they had envisaged. By the time a suitable investor had been located, BurnRate was beginning to run out of cash.


their contacts


The founders and had already


exhausted their funds in getting to this point, so BurnRate’s options if they couldn’t close the investment round in time were either to shed some of its staff or to take short-term financing on unfavourable terms.


The


founders and their contacts had


already exhausted their


which meant that if any negotiations were opened they were the only party under any pressure to reach agreement quickly. Any other party could drag their heels over a change that


was contrary to


funds in getting to this point, so BurnRate’s options if they couldn’t close the investment round in time were either to shed some of its staff or to take short-term financing on unfavourable terms.


their


interests, but the selling founders were strongly incentivised to conclude the negotiations – and the easiest way to do that is to accept the other party’s position. More, the consequences that the selling founders expected to face were based on the price of their shares and the expected changes to the tax regime – and therefore easily calculable amounts.


Each of the other parties to the deal, recognising the negotiation pressure on the selling founders, requested last-minute changes to the documents


of


that cost the selling founders value - but left enough it on the


table that it was still better to sign the deal that day rather than re-open negotiations.


The selling founders duly conceded those points.


BurnRate Ltd. -


Timing BurnRate Ltd. was a pre-revenue company, which had raised money from the founders and their contacts to develop its product.


The directors


of BurnRate intended to get the product developed and tested, and on the basis of the tested product raise external capital to finance production and eventual sales.


BurnRate’s directors and advisers could have recognised that there was an issue here for BurnRate’s financing, and accordingly begun the process earlier to give themselves the best chance of finishing the transaction before their funding became an issue. With product testing in progress it is likely that any offers they received would have been conditional on that testing being completed satisfactorily, which may have created some additional work. By waiting, however, BurnRate was left in a position where they had to complete the deal quickly – negotiation pressure which would affect their terms.


Work does tend to spread out to fill the time available, and beginning a process earlier will lead to a longer process - with all of the cost and disruption that


entails. This can be


counteracted by keeping up the momentum with the other parties to


the transaction,


which good advisers can help with. In any event the cost of a slightly longer process should be marginal, compared to the potential cost of ending up subject to substantial negotiation pressure.


BurnRate Ltd. –


Deal Deadline One alternative technique to try to prevent negotiation


47 entrepreneurcountry


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