Perspective of The Day – Never Negotiate from a Position of Weakness
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Negotiating first and foremost is about leverage. Unfortunately, in the early stages of a venture, you have little leverage. You often are underfunded, unknown, working on an unproven business model and subject to legitimate criticisms. Creating leverage when you have none requires creativity. Some examples:
• Communicate a set timetable by which you expect to close an investment. You, not them, are setting the timeline for investment.
• Set a plan for a larger investment amount and state that you will take a lesser investment if the valuation does not meet your expectations. This shows belief in your vision and that there are multiple paths to get there. You, not them, are setting the criteria you want in an investor. When you do that, make sure you have a plan for the lower investment amount. The first thing they will say is “Great, can we see the financial model for that plan?”
• State your criteria for an investor. “We are looking for an investor who has experience in the space, invests from $5 to $10 million, focuses on SAAS companies, takes a minority interest and has an investment time frame of three to five years.” When they sense you are interviewing them (which is part of what you should be doing), they sense the confidence of a leader who knows how to handle the business’ needs and is going places.
• Investors should never know that they are your most viable investor prospect. They need to understand if they want your business, they need to act to take advantage of it. Think you are being deceptive? Think of it this way. Do you think that if you asked your investor, “Are we the only investment in this space you are considering?” And if you were, they would say, “Yes you are.” Please.
Creating leverage when you have little is a real skill. You may be saying to yourself, “It’s a good thing they don’t know how dysfunctional we are.” They know. They have Thanksgiving with their families too.
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