Startup lawyer explains how to evaluate funding deals in a recession - Business Insider

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Many startups are navigating their first official recession. Here's how one Silicon Valley lawyer is counseling young companies to make it through a long downturn unscathed.

could cause even well-worn investors to hesitate before writing new checks.

That uncertainty is causing investors to step cautiously when they do decide to invest, Patterson said. This has put downward pressure on private company valuations, and has even led to renegotiations when the investors were unsure original deal terms could be sustainable in the current environment. The shift is a direct contrast to the founder-friendly terms that have prevailed in Silicon Valley over the last decade, Patterson said.

Investor terms that might have seemed overly demanding may now be rolled out again, such as provisions that guarantee an investor returns that are a multiple of the money they invested when the startup is sold or goes public. Patterson said he has seen at least one such deal fall apart during negotiations as the investor tried to renegotiate to include similar provisions. The deal was already in the works prior to March, he said, and so it felt like a relic from a previous time even just a month later.

 

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