Hi Christian! First, could you please introduce yourself shortly?
Sure! I´m Christian Musfeld and I´m working at Osborne Clarke in Berlin. We advise investors and startups in all aspects of venture capital financing. We help startups at the formation phase, too. I am in general fairly active in the startup environment in Berlin. One day we came to realize that Berlin is the busiest place regarding startups, so considering that it makes sense to be close to our clients, I moved from Cologne to Osborne Clarke Berlin 2 ½ years ago. I had previously worked as an Investment Manager at DuMont Venture, first in Cologne for two years and later in Berlin. So I had lived here for one year already and basically made the same observations about working together with startups back then.
How did your relationship to the Axel Springer Plug and Play Accelerator develop?
My cooperation with Axel Springer Plug and Play began with a contact to Uli Schmitz. Shortly before the Accelerator was founded I advised the startup Dropspot, who sits now at your office, concerning an investment from Axel Springer. We got to know each other in the context of that deal, although we were working on different sides. During that time I talked with Uli about my desire to somewhat transfer some of that deal experience to the startups: What is really important for an investor? Which aspects is he more likely to negotiate? What are the no gos from an investor's perspective? That is where it started. Today I offer a workshop at Axel Springer Plug and Play program covering these topics.
We are very glad to get your support in that matter. Do you have another personal connection to the startup scene?
I was never involved in a startup with regard to its operations, but have been working with startups for the last six years both as an investment manager with DuMont Venture and now as a lawyer with Osborne Clarke.
What did you want to deliver to the startups in your workshop “First VC Contract”?
In my opinion there is an immense imbalance between investors and startups when it comes down to negotiations. It is almost an unfair advantage. The investor is experienced, he knows the business of deal making and is used to such situations. In contrast the founders are negotiating for the first time. And, the specific venture capital contracts are far away from their daily business. I try to teach the founders on what to focus when negotiating with an investor. Some points in this regard are just not negotiable and should not be discussed as they are too fundamental to venture capital contracts. On the other hand there are a lot of areas with more leeway. That is where founders should start negotiating. This is basically the overall topic of my workshop.
Which challenges and problems can occur for the young companies?
The biggest problem is that the founders – ususally – stand with their backs against the wall. They look for funds. They usually lack funds and are in the danger of becoming insolvent if a deal falls through. If there is only one party interested in investing in your company there is no level playing field. You have done well to find one investor. Nevertheless, the major task should be to look for a second investor in order to create proper negotiations and real competition among investors. That is not all, I am afraid. On top of that it is important to find a financing partner who suits your team and understands your business. Do not simply look at the numbers. Look at the relationship you want to create with the investor like a marriage... it is a long time engagement, so one should take some time to look for the right one.
Do you have any best practices that you want to share with the startups?
From a legal perspective? Well, do not sign term sheets, even if they are non-binding, unless you fully understand them. There are a lot of resources out there on the internet (i.e. various term sheet templates), which will help you understand general terms and principles. If you do not find the specific terms given to you anywhere out there on the internet, you got an unusual offer – to say the least. Furthermore, the general assumption should be, that all shareholders are equal – within certain limits of course, but as an assumption this works fine. Therefore, whenever you find any particular investor's right, preferred shareholder's right etc. you should start thinking, whether that is fair reflection of the different roles of investors and founders. Finally, if in doubt book an appointment at our open office hours. We are more than happy to discuss – among other things – term sheet issues free of charge.
How do you see future cooperation's going with the Axel Springer Plug and Play Accelerator?
Apart from Batch III I have held a workshop for all of the Axel Springer Plug and Play startups. This year we plan to extend the range of topics for the workshops, e.g. „What should my general terms and conditions look like?“ or other IT/IP related topics from startups. I am really looking forward to do this workshop again for the next batch. In addition to that, we will offer individual office hours for the teams if they need advice on financing, venture capital terms IP and IT on a one-on-one basis. There is more to come and I will stay in touch with the accelerator program.
Thank you Christian!