Without trust between an entrepreneur and an investor, no deal is going to happen. It takes time to earn trust so one limiting factor on the speed of a deal is how long it takes to earn trust.

Entrepreneurs have often asked me how long it takes to complete a deal. My typical response is that it varies based on a host of factors and I would proceed to list a few factors. I didn't include "trust" as one of those factors but that was a big mistake.

There are lots of tips on how to build trust. The tips vary and there are potentially lots of them. One tip you might encounter is that it takes time to earn trust. It is not clear how much time and presumably the other tips are designed to reduce the amount of time. But how far can you reduce the time required? Mistakes can be made when there is a desire to close a deal quickly and trust is allocated too fast. Due diligence involves slowing things down, doing your homework, talking with each other and hopefully building up a healthy sense of trust between each other. Once this is done, adding a lawyer can help to slow things down again and avoid additional mistakes.

The Slow Food movement encourages us to slow down the system for producing and consuming food as it can produce lots of individual and societal benefits. Likewise a Slow Deal might be the best deal. A slow deal might be defined in terms of the level of trust between the parties finalizing the deal. When both parties have a high level of trust, that might set the stage for other good outcomes in terms of an ongoing working relationship and eventual success of the venture. If there are lots of lingering trust issues then the venture might be doomed from the start.

An entrepreneur can't wait forwever for a deal to close and needs to make decisions, often quickly, about whether to pursue or close down a funding lead. One of the determining factors is again the level of trust and a forecast of whether it is likely that you can build the requisite trust level in a reasonable amount of time.

Trust as a mathematical concept is interesting because it can be easily framed in Bayesian terms. Trust involves the notion of prior trust and updating prior trust levels based upon new confirmatory or contrary evidence. Googling the term "Bayesian Trust Model" returned this paper Bayesian Network-Based Trust Model (2003, PDF Link) with 433 citations. Looks like an interesting attempt to formalize some important aspects of what trust consists of. Many years ago I worked with one of the authors, Julita Vassileva, on Supporting Peer Help and Collaboration in Distributed Workplace Environments (1998, PDF Link).

When seeking seed funding a common piece of advice is to ask friends and family for financial assistance. Funding at the seed level is quite risky so you generally need a backer who trusts you alot. To get similar funding from someone who is not "friends or family" will be more difficult because of the high trust level required and how difficult it might be to obtain. Once a project is seed funded and has something to show for it, then funding from outside sources is easier because they don't have to put as much trust in you that you will do what you say.

Trust can be used to analyze many of aspects of deal making.

Inspiration for this blog came from reading chapter 2 (title "Speed") of the book by noted designer John Thackara called In the Bubble: Designing in a Complex World (2005). I am currently awaiting delivery of John's most recent book How to Thrive in the Next Economy: Designing Tomorrow's World Today (2015).

In the last few days I came across a couple of relevant guides that I though I would share with you. And a YouTube video.

For those new to some of the lingo and concepts around raising early stage capital, the Guide to Seed Fundraising might be useful.

The issue of equity compensation in a startup company can be quite complex. The Open Guide to Equity Compensation will help you understand some of the relevant lingo and concepts. What is also interesting about this guide is that it is a living document on GitHub. There are 12 contributors so far.

On the issue of venture capital, I found this video interview between Oren Klaff and Jeremy Glaser on "How Venture Capital Really Works" to be entertaining and informative. Both Oren and Jeremy are involved in helping companies to raise venture capital. This video has a useful discussion of the differences between the Seed Round, the A Round, and the B Round and how the meaning of these fundraising terms are changing.

The Canadian Venture Capital Association (CVCA), in association with Thompson Reuters, compiled a report on Venture Capital Investment in Canadian Companies in 2013. The report includes an interesting graph that ranks US states and Canadian provinces by the amount of venture capital they attracted in 2013. The graph is reproduced below.

It would appear that there is less volatility in rankings among the top 5 states, but after that there is quite a bit of year-to-year volatility in rankings. It is also important to note that the money being spent in a particular state or province does not all come from the state/province/country in question. In the case of the Canadian provinces, the improved rankings came about as a result of increased foreign VC investment - domestic VC investment was actually down in 2013 compared to 2012 so the improved rankings we due to improved foreign VC investment. The increase in Canadian foreign investment came from US venture capital.

The report contains many interesting and useful graphs and is worth exploring on your own. I'll end this discussion by displaying one more graph from the report. The graph below is a breakdown of where VC money is being invested. While the majority of investment continues to be in info-tech, and it continues to increase each year, the average deal size has increased significantly for clean-tech companies. Average deal sizes for clean-tech companies were at least double the size of deals in companies belonging to other sectors.

Paul Graham is one of the cofounders and the leading voice for Y Combinator. Since 2005, Y Combinator has funded over 450 startups, including Dropbox, Airbnb, Stripe, and Reddit. Paul's latest blog posting, How to Raise Money, offers excellent and authoritative advice for anyone trying to raise money for their startup. Below is a listing of his main points. To obtain more details on each point you should read the full blog:

• Don't raise money unless you want it and it wants you.
• Be in fundraising mode or not.
• Get introductions to investors.
• Hear no till you hear yes.
• Do breadth-first search weighted by expected value.
• Know where you stand.
• Get the first commitment.
• Close committed money.
• Avoid investors who don't "lead."
• Have multiple plans.
• Underestimate how much you want.
• Be profitable if you can.
• Don't optimize for valuation.
• Yes/no before valuation.
• Beware "valuation sensitive" investors.
• Accept offers greedily.
• Don't sell more than 25% in phase 2.
• Have one person handle fundraising.
• You'll need an executive summary and (maybe) a deck.
• Stop fundraising when it stops working.
• Don't get addicted to fundraising.
• Don't raise too much.
• Be nice.
• The bar will be higher next time.
• Don't make things complicated.

The National Venture Capital Association (NVCA) is trying to reduce the legal costs of fundraising by offerring model legal documents that could be used to expedite the process of finalizing a venture capital deal. According to NVCA:

A conservative estimate is that our industry spends some $200 million in direct legal fees annually to close private financing rounds. In an all-too-typical situation, the attorneys start with documents from a recent financing, iterate back and forth to get the documents to conform to their joint perspective on appropriate language (reflecting the specifics of the deal and general industry best practices), and all parties review numerous black-lined revisions, hoping to avoid missing important issues as the documents slowly progress to their final form. In other words, our industry on a daily basis goes through an expensive and inefficient process of "re-inventing the flat tire." By providing an industry-embraced set of model documents which can be used as a starting point in venture capital financings, it is our hope that the time and cost of financings will be greatly reduced and that all principals will be freed from the time consuming process of reviewing hundreds of pages of unfamiliar documents and instead will be able to focus on the high level issues and trade-offs of the deal at hand.

Keep in mind that these documents are primarily aimed at venture capital groups and not at angel investment groups. In general, the legal complexity of venture capital fund raising is higher than angel investor fund raising which can be as simple as a joint venture agreement. Nevertheless, it is worth reviewing some of these documents to educate yourself about the types of issues that arise in more complex fund raising deals. If you don't understand some of the terms or concepts being used, perhaps it is time to consult the internet or a library to find the relevant resources to help you understand.

Here is a list of the model legal documents the NVRA offers along with direct links to the relevant Microsoft Word document downloads:

• Term Sheet
• Stock Purchase Agreement
• Certificate Of Incorporation
• Investor Rights Agreement
• Voting Agreement
• Right of First Refusal and Co-Sale Agreement
• Management Rights Letter
• Indemnification Agreement
• Model Legal Opinion