Q: What can you do once you’ve been offered a term sheet to make the deal competitive?
It’s not that complicated. You generally have one option: let everyone else you are already talking to know you have a term sheet.
It’s great you have a term sheet, but if you push it too far, or stretch it out too long … that term sheet may go away.
Generally, term sheets have either explicit expiration dates, e.g., “This Term Sheet Expires on Friday” or implicit ones, “Let me know if that all looks good.”
-> You usually have a week or two to get another offer.
If you don’t already have another investor pretty far down the process, it may be too late to get them there. Not always, but often. It’s too late to get another brand new investor that doesn’t know you all the way to term sheet in time.
So tell everyone that already knows you that you have an offer. See what happens. And if they don’t move quickly — assume you probably won’t get another in time. In time before the first one sort of disappears.
Finally, it is OK to ask for at least a little higher valuation. Even without another offer. The investor may so no. But if they offer $0.50 a share, no one is going to be insulted if you ask for $0.55. They may push back and say “$0.50 is as good as we can do.” And it may be worth just shaking hands and agreeing to $0.50 if it’s fair (goodwill goes a long way). But you won’t break any glass asking for a tiny bit higher valuation.
(note: an updated SaaStr Classic answer)