The section of negotiation is my favorite section of this book; I can relate to it much better than the previous parts as I negotiate with many vendors in the current position, and in life almost daily. Negotiation is fun at times but also painful and irritating, depending on the terms and the outcome.
Let’s begin by defining negotiation. I ran across several different definitions, but the one I like the most is by the authors of ‘Getting to Yes.’ The author defines negotiating as a “back-and-forth communication designed to reach an agreement when you and the other side have some shared interests and others that are opposed” (Fisher, Ury, & Patton 2011).
This definition also fits very well in the topics discussed in the book ‘Winning Angels’ from which we continue extracting the knowledge and benefits.
As it was the case with structuring, the same trend is present with negotiating as well; some angel investors negotiate all the time while others not so much, if at all. As Amis & Stevenson write in the book, “many of the same angels who do not care to focus on the structure will also not want to spend time negotiating, even to reduce the price” (Amis & Stevenson, 2001).
Such angels either let someone else negotiate the terms, assume someone else has already negotiated, or let the entrepreneur define the terms, as is usually the case in the seeding round. Such an approach seems reasonable to any entrepreneur as they get what they want and feel like they are in charge. Doing so, “it should be hard for them to regret it later” (Amis & Stevenson 2001).
Many angels who do not negotiate avoid the process as it can be highly emotional for the entrepreneur. The angels who do negotiate are usually more serious about their role and involvement in the investment. They negotiate favorable terms in the price, structure, how much money they will invest, and what role they will play (Amis & Stevenson 2001). From the angles’ point of view, they want to make sure they do everything in their power not to lose money. From the entrepreneur’s point of view, they don’t want to lose too much equity or control of their “baby.” As with the structure, coming to common ground and striking a win-win situation would be an ideal outcome. Whether the angels negotiate or not, they know what terms would work for them from prior experience. If negotiation is not something they see as important, they can take a pass on the deal or take the deal and plan to negotiate in the future rounds to secure a better outcome.
Additionally, many winning angels do not negotiate personally due to the unneeded problems that can occur during negotiation in the early stages so that they would leave it to another investor, attorney, or one of their representatives (Amis & Stevenson 2001).
As entrepreneurs, we need to stay vigilant, hire the best attorney, bankers, and have reliable representation, even if we deem ourselves a great negotiator. Having a competent and robust team to help you structure the deal may alleviate one from having to negotiate at all. Lastly, if it comes down to negotiations, always be aware of your alternatives and have your BATNA, or best alternative to a negotiated agreement (Shonk 2020). Having an alternative allows us to not act out of desperation. Surprisingly enough, many investors look out for their best interests and will prey on inexperienced entrepreneurs.
I am a firm believer in mutual benefit, and I do like to negotiate. There should always be a way for both parties to succeed. According to Brian Tracy, the author of ‘Negotiation,’ “negotiation never stops. It is a major part of the business of living and communicating with others. It is the way that individuals with differing values and interests find constructive ways to live and work together in harmony.” (Tracy 2013).
Let me know your thoughts, do you like to negotiate? Are your negotiations successful? What strategies work best for you?
Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.
Fisher, Roger C., et al. Getting to Yes: Negotiating Agreement without Giving In. Penguin, 2011.
Shonk, Katie. “What Is Negotiation?” PON, Harvard Law School, 27 Apr. 2020, www.pon.harvard.edu/uncategorized/what-is-negotiation/.
Tracy, Brian. Negotiation, AMACOM, 2013. ProQuest Ebook Central, https://ebookcentral.proquest.com/lib/hunter-ebooks/detail.action?docID=1204654.