Early Stage Investing- Negotiating
Week 6: Negotiating
Negotiating a deal in an angel investor position can be difficult. In reading Winning Angels: the 7 Fundamentals of Early Stage Investing by David Amis and Howard Stevenson, the idea of negotiating is explored along with the how. To me negotiating automatically makes me think of money/price but in this case, it can be negotiating on price, the structure of the deal, how much money will actually be invested, and what role they will play (if any). I found it interesting that angel investors sometimes will get someone else to do the negotiating for them. In my mind I would want to personally see how they respond- therefore better understand their working style, character, and trust before agreeing on terms (especially if I didn’t like them to begin with). I can see however how it takes the emotion out of the situation. Entrepreneurs can be emotionally attached to their business, I know I can be, so having a middle man to do the negotiating probably enables for a quick decision and doesn’t waste anyone’s time.
I like how this chapter touched on one of the key components of a “best case scenario” of a negotiation is trust. For me, trust is everything. It beings to build (or diminish) when the first encounter occurs and from only trust comes success. If an angel investor doesn’t trust an entrepreneur or vice versa, the relationship will not work. Therefore, in the negotiating stage, if terms aren’t met and the trust is not there then the deal should not happen. I also find it interesting the book mentions that angel investors spend a lot of time negotiating the terms. It makes sense to do this sense you will be investing your money into the business, but I also can see how spending too much time is also wasting it. I can see why waiting would buy them time to learn more about the company and also hopefully show your interest to the company.
Negotiating is such an interesting topic that is one that might also feel awkward. Both parties need to agree upon terms they are comfortable with, and only then will the deal begin. When thinking about what we would want as entrepreneurs- knowing the wants and needs of an angel investor is also key in creating a win-win situation. Oftentimes as entrepreneurs we get sucked into our story and brand and it is hard to then share your company with an investor even if it really is the right thing in order for it to grow. I learned from this chapter that as an entrepreneur I need to protect my brand, but also listen and try to emphasize with the angel investor as well. You as the entrepreneur can’t do everything and at some point the business will need investment in order to continue to grow. It is hard to understand this because at this point my company is so small, but after listening to other companies stories in different podcasts, angel investment is the right option for certain businesses. In the end it’s all about compromise and growing the business to make a return on investment.
References: Amis, David, and Howard H. Stevenson. Winning Angels: The 7 Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.