Negotiating – Early Stage Investing Series

“During a negotiation, it would be wise not to take anything personally. If you leave personalities out of it, you will be able to see opportunities more objectively.” – Brian Koslow

Finding a set of rules that make sense to all parties involved is the difficult business of negotiation. Yet when each and every one of us has different desires and emotion, that process can become strenuous and even hostile if not kept under control. Just as Koslow says above, it is best to leave personalities at the door so that opportunities can be better discussed. But what does that look like in real life when negotiating business agreements? And how can we better equip ourselves for the discussion?

Decide whether or not you actually need to negotiate

You don’t always have to negotiate things, and indeed, many investors decide early on that they will not. According to David Amis and Howard Stevenson from the book Winning Angels, choosing not to negotiate can save time and relationships by allowing the entrepreneur to simply get what they want. “By giving the entrepreneur their own proposed terms, it should be hard for them to regret it later” write the authors. And although some of this does come down to pleasing the entrepreneur and having a good relationship with him/her, another part of it includes your own personality type. Are you comfortable in conflict, or are you stronger in interpersonal relationship building? Depending on which side of the spectrum you lie, you may decide to either negotiate or pass and accept or reject an offer quickly.

Be strong, but always ethical and considerate of others

We have all have that mental image of a negotiator being a dominating figure who works to get his way. But what is the use of getting your way in a business deal, if it comes at the expense of someone else? If you end up shortchanging the entrepreneur in charge of executing the opportunity, who are you really stealing from if not from yourself? Being considerate of the needs of others during a deal can actually end up bringing you a higher upside than if you took more for yourself. It may seem counterintuitive at first, but the people on the front lines of day to day operation will be more motivated to do their best work when they have a sweeter deal to work with. In turn, that will result in more company growth and greater value of the shares that you own (even if your position isn’t as high as it would be otherwise).

Maintain long-term perspective within short-term decisions

It might be a one-time negotiation, but you’ll be in business with the people across the boardroom table for many years to come. Whether or not you will have a healthy professional relationship with them comes down, in part, to the way that you approach negotiations. Finally, since it is possible that your next big deal might come from either the same people, or friends of those people, always strive to see the bigger picture and the fact that you are investing largely in people.


Source:

David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

 

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8 thoughts on “Negotiating – Early Stage Investing Series

  1. I thought the three points you made on negotiating were really informative. Although it may be a one-time negotiation, the entrepreneur and investor have to keep in mind that they will be working side by side for a long period.

  2. Austin your post had three great points. I really liked the first one, (decide in the beginning to negotiate or not), this does a couple of things.You have set a standard across the board and other people that in future deals will know your views. You can’t go wrong by setting the precedence I also like the fact that being ethical is a foundation to business.

  3. Hi Austin,
    I liked your take on being considerate of others and even though you have to be strong there is an ethical way to do it. You have to negotiate with others and still be professional and treat them as you have them treat you. I like having win-win scenarios it helps everyone have a good experience, builds trust, and makes it easier for future business deals.

  4. Good write up Austin. If I was an angel investor I would have to negotiate unless the entrepreneur gave me such a good deal there was no need to negotiate. I do know that no matter what side I was on I would have someone like attorney do the negotiations for me in order to keep my personal feelings out of it.

  5. I think the chance of getting a situation where is no negotiation is to go with your best offer first. A lot of time people hold back and offer something that isn’t really the best deal for both parties. I think that’s a waste of time unless you really enjoy that aspect of the game. But if the goal is to get the money/support I think it is most efficient to have you best offer front and center and when someone asks for a deal to honestly say, “really I have thought about this and my offer is the best choice” (unless their idea is actually a good one that you didn’t consider)

    — Brad http://blog.medstudentlearning.com/2017/06/negotiation-of-startup-funding.html

  6. Austin,
    Everyone pretty much said what I wanted to say. I agree negotiations are not required and investors should be made aware as soon as possible for transparency. Also, entrepreneurs have to cautious when discussing the terms of investment not to enter negotiation with an investor because they “all of sudden” have an issue with the terms. I am not saying compromising cannot take place but just make sure it doesn’t become a back and forth conversation.

  7. Hi Austin,

    I believe it’s true that one must be fair and the outcome of any negotiation is one that both parties see as mutually beneficial…or at least both parties can live with the outcome. If either party feels taken advantage of in the negotiation it will create ill will and make any future negotiation needs very difficult. Ethics in negotiation, to your point, is paramount.

  8. Great Post! I liked how you said, “decide whether or not you need to negotiate” . This is so true! I liked how you broke down each point and made it clear at the end that we need to be careful with whatever we decide, because we will see these people again, and how you act with them in the beginning goes along way.

    Thanks for this great information!

    ~Christina

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