You have just delivered the best pitch of your life, and with it won the interest and financial funding needed to get your business off the ground. The hard part is officially over, or is it? What strings are attached to that check? What deal is a good deal?
While the initial pitch may be the mountain to overcome for many, coming to an agreement on investment terms can be just as challenging, especially when the investee is a startup with little to no revenue. Although on paper there may not be much to barter with, Asheesh Advani, contributor for entrepreneur.com states “never let them see you sweat. Investors only invest money into ventures with a confident entrepreneur who believes in the future prospects of the business.” He also shares non-negotiable terms are key when dealing with minority investors. It shifts the focus from investment terms to allowing a thorough evaluation of the business, while saving a headache later down the road.
Alan Gleeson for BPlans.com believes evaluation of investors is just as important as evaluation of the business from investors. Identifying investors who bring more to the table than cash, but networking abilities, knowledge, etc, is far more beneficial and will help business success greater in the long run. Gleeson also deems it necessary that understanding the intent of an investor is vital in deciding what deal is right for a company. Asking their preferred exit strategy, preferred level of involvement, and terms/conditions gives better information deciding if a deal is right, while also establishing the stance that the negotiation is done from a stance of growth only, and not desperation, requiring more respect from investors when bargaining.
Understanding leverage in negotiations ties back into the belief of “never let them see you sweat”, mentioned above. Deepak Malhorta, contributor for Harvard Business Review, shares understanding leverage from an investor/investee standpoint, the risk of placing the venture in an unfavorable position is lessened, allowing terms that better suit the business to more likely be achieved. Squeezing long-term partners to their bottom dollar should be avoided, you should certainly leverage your alternatives to fight for terms that are important to you.
For more tips on the art of investment negotiation, be sure to check out “Six Surprising Negotiation Tactics That Get You The Best Deal” by Kristi Hedges and Forbes.