Negotiations

Negotiations come into play when the investor and the entrepreneur do not see eye to eye on the structure of the deal; one party feels that they are being slighted in some way.  Greed may also be the driver.  Regardless, to make the transaction happen negotiations of the terms and conditions of the structure must be revised to move forward and maintain a positive business relationship.  Sometimes this simply doesn’t happen, and one of the parties moves on.  When starting negotiations, both sides should aim to understand the motivation of their counterpart and the reason for their objectional stance.  Once a baseline is established, small moves can be made in either direction.  Know going the maximum flexibility you have and stick to it; make this analysis well before negotiations.

Here are the guidelines to successful negotiations:

Be Prepared – As said before, knowing your position before negotiations begin is very important.  You do not want something to happen during negotiations just because you were not prepared or the numbers had not been run.  Agree with other minority investors on which terms you see as non-negotiable.

Be Flexible – Entering negotiations without flexibility is not considered negotiating!  Period.  If this is a deal that must be made, you have to be willing to make concessions, or the deal may not be made. 

Be Confident – Being confident and assertive will take you far in negotiations.  Operating from a disposition of weakness will be realized and preyed upon.  The investor may only be wanting to test you to see if you can handle the stress.  If they see you cave under pressure, they may not see you as a business owner worth investing in.   

References:

Amis, A. & Stevenson, H. (2001). Winning Angels: The 7 Fundamentals of Early Stage Investing. Great Britain: Pearson Education.