Negotiating – how much of your company are you going to give up and on what terms? How much bargaining will there be along the way? Just remember, when you are bargaining and negotiating, you are doing this people who may be part of your business for many years to come. These people are the investors and have more than money to invest with you and your business.
Amis says you should think of it as “You and me against the world” as opposed to “It’s you against me.” Your investors will contribute to the success of your business. We want money to build or expand our business, and investors seem to focus on the numbers during negotiations. They think about the initial ownership stake and they believe this has the greatest impact on the future value of their investment. So be ready to bargain hard over this component.
Time is money, right? You may be in a hurry to negotiate a deal, but investors can take their time on it, to make sure it’s going to be the right investment for everyone involved. So, don’t go into the negotiation thinking it may be done today, it might take a few days, weeks, or months. You must be patient!
Here are some negotiation tips for entrepreneurs:
- Write up the investment terms before the meeting: Be prepared! It’s critical to have investment terms clear in your head and on paper before you meet with investors. Knowing the terminology and what you want, is key to talking the language.
- Don’t let them see you sweat: You must be confident! Investors will put money into a company if the entrepreneur is confident of the company’s plan and future.
- Have an open mind: Your investors are not your enemies, and if you think that then you don’t need to take money from them. Good investors are trying to build a relationship with you, so you must have an open mind. You and the investors may have different ideas and interests, and that’s ok – isn’t that the point? You can work together to bring a variety of ideas to the business and make it successful, you just have to trust them.
- Leverage what you have: The investors are going to want a variety of things, but that doesn’t mean you should give them everything they want! You need to look out for the interest of your business. You can leverage your strength, make an investor interested in you and your company, enough to give you money.
- Have excellent communication: Miscommunication is a killer in every relationship, especially business! At the end of a discussion, summarize the key terms negotiated and decisions made. Confirm that these are right and ask any questions on things that don’t make sense.
David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.