Three questions came up after the last bootcamp session. The second is:
“I’ve been talking to potential investors, but keep getting surprised when I think we have a deal. What am I doing wrong?”
Whilst this (and the following post) are way beyond the scope of the bootcamp, it’s worth touching on a couple of points that may be helpful.
“Negotiating” is really just another way of saying “selling”. Selling (as opposed to taking orders) involves some exchange of value between a seller and a buyer, and an explicit or implicit win-win. If the seller can convince the buyer that the value the buyer is receiving is greater than or equal to the value they are giving, then it’s a win for the buyer. If it’s also a win for the seller, it’s a deal!!!
In an investment negotiation the entrepreneur is “selling” the risk-considered value of the return to the investor, and the negotiation is usually around differences in opinion of valuation and risk. The entrepreneur is likely to have a higher view of the valuation and a lower view of the risks than the investor.
Now, when the investor is a VC, a win can mostly be created when (s)he has a favorable return on their investment, and the points of negotiation are usually valuation and equity position.
But, “win” can encompass more than “return”.
In any buying/negotiating situation, people “buy” for all sorts of reasons; ego, prestige, power, etc. And closing a sale is – to a greater or lesser extent – about understanding what constitutes a “win” for the buyer, that also enables a “win” for the seller.
In an investment negotiation, a “win” can be more that financial return for a VC. In a down round or a down economy, a “win” maybe an egregious valuation – just because they can!!
Similarly, a “win” for an angel investor can be all sorts of things – power, publicity, position.
And sometimes a “win” for an entrepreneur that’s running out of cash is simply being able to stay afloat.