When it’s Time to Negotiate With Your Investor
It’s almost impossible to design a business plan without money in mind. A business starts with a creative and lucrative idea but money is the key factor that will determine whether you’re successful or not. With any business it takes some cheddar to get your feet off the ground, and what better way to obtain money than from experienced and valued venture capitalist (VC) and/or angel investor?
It’s neither easy nor charming to waltz up to someone and attempt to ask for a large sum of money for your startup. It becomes appropriate when you have a killer concept, solid business plan and a strong team. Keep in mind that this is a challenging task, many startups fail their first time, but knowing a few basic tips can greatly increase your chances of signing those papers with a investor.
Getting the green light from a venture capitalist can be very exciting but negotiating determines what you’ll actually receive from the VC. Here’s what is important when negotiating funding:
- Avoid desperation. If you are desperate for money, you might be willing to give up too much or settle with a deal that won’t benefit your company. It’s all about being confident-about your company and your financial standings. The more confident and composed you appear the more likely they will be to invest and negotiate.
- Put your foot down. There are some elements of your negotiation that you’ll find non-negotiable. Be stern and make sure you receive these terms indefinitely, if they are crucial to your business structure.
- Get a lawyer. Having a lawyer by your side during the negotiation can be a lifesaver. Your lawyer will be able to point out the potential problems in the negotiation and suggest alternatives. It will cost you to find a good lawyer but if he or she can save you from future conflict, it will be worth it in the long run.
- Don’t forget your goals. Do not get caught up in negotiating the little insignificant points of your deal. Remember why you’ve chosen this investor and what you’ll actually need from him or her.
- Make a new friend. You are more likely to yield better results if you treat your VC as a partner and/or even a friend at times. Negotiations are meant to be friendly and come to a compromise that benefits both parties. Having a personal and involved relationship with your investor shows that there is mutual trust and understanding.
It’s important to realize that all negotiations don’t end in agreements and partnerships. Before you think you found your perfect investor, think again, continue your research and explore the other options that are out there. Putting all your eggs in one basket can be stifling, especially if you’re inexperienced in the startup game. Get advice from friends who have invested and see what is the smartest option for you. It’s like any business meeting in your career- you’ll have to be prepared, know what you want, ask questions and be ready for anything that is thrown at you.