Case Study.. A Tech Venture Mishap A couple of years ago, two cofounders of a tech venture walked into a meeting with th

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Case Study..
A Tech Venture Mishap
A couple of years ago, two cofounders of a tech venture walked
into a meeting with the CEO of a Fortune100 company
who had agreed to invest $10 million with them. A week earlier, the
parties had hammered out the investment amount and valuation, so
the meeting was supposed to be celebratory more than anything else.
When the cofounders entered the room, they were surprised to see a
team of lawyers and bankers. The CEO was also there, but it soon
became clear that he was not going to actively participate.
As soon as the cofounders sat down, the bankers on the other
side started to renegotiate the deal. The $10 million investment
was still on the table, but now they demanded a much lower
valuation; in other words, the cofounders would have to give up
significantly more equity. Their attempts to explain that an
agreement had already been reached were to no avail.
Upset and confused, the cofounders quickly assessed their
options. Accepting the new deal would hurt financially (and
psychologically), but they’d get the $10 million in needed funds.
On the other hand, doing so would significantly undervalue what
they brought to the table. They decided to walk out without a deal.
Before they left, they emphasized their strong desire to do a deal
on the initial terms and explained that this was a matter of
principle as well as economics. Within hours, they were on a plane,
not knowing what would happen. A few days later, the CEO called and
accepted the original deal.
Had they overlooked steps involved in finalizing the
deal? Had the CEO intended to renege all along—or had his team
convinced him that the deal could be sweetened?