To negotiate or not to negotiate? The question every investor will face at some point during the process of getting a deal done. There are many aspects to be considered when deciding if and how to negotiate. However, one of the most important things to consider is how will the negotiations affect the relationship between the investor and the entrepreneur. Starting off on the wrong foot could be detrimental to a business opportunity.
Negotiating can be a very emotional process, and therefore, many investors prefer not to risk souring a relationship with an entrepreneur over negotiations. So how do these investors ever strike any deals if they aren’t negotiating? The authors of Winning Angels lay out a few options. One, they let someone else do the negotiations for them. Outsourcing this responsibility to an attorney allows the investor to shift any ill will to the attorney as opposed to coming off as greedy. Another option is they leave it up to the entrepreneur. If the entrepreneur proposes a fair deal, then they accept. If the investor doesn’t like the proposed deal, they simply decline the opportunity and move on. A third option is the investor doesn’t care much about the financial aspect at this early stage time. They will accept any reasonable terms presented by the entrepreneur because they want the entrepreneur to feel good and remain motivated to win. Sometimes the investor may also wait until later and more significant investment rounds to negotiate terms. Although it seems crazy to invest money and not negotiate terms, all of these reasons help to justify those decisions.
On the other hand, some investors view negotiating as very important because it is an opportunity to further evaluate the personality, characteristics and values of those you may be going into business with. You are not going to want to go into business with an entrepreneur who is more focused on being greedy and striking the best deal for themselves. And same goes for the entrepreneur when deciding whether an investor is the right partner or not. Negotiations can bring out the true colors of individuals so it can certainly be used as a vetting tool. You also don’t want to go into business with someone who can’t handle a little pressure and find a way to problem solve without getting their feelings hurt.
At the end of the day, there are multiple ways to go about the negotiation phase of sealing a deal. If all parties go into the process with a fair and realistic bargaining range, then it seems likely that a fair deal can eventually be made. And sometimes the best deals are the ones that aren’t done. Not every potential opportunity has to be carried out. Knowing if and when to walk away from the negotiating table is an essential skill to have.