As a negotiator, it’s important to understand that you are coming to the table with an offer based on your skills, experience, goals and what you can contribute financially. Of course, the deal is based on you, the investor, wanting to make money on your investments.
For this reason, it’s important for you to decide when it’s time to let the deal go, and when to re-negotiate the terms of the agreement. You may be focusing on giving back to the community in some way, so the negotiation may not always be solely about maximizing your return. Depending on the goals of the investor and entrepreneur, it’s important to flush out any potential conflicts early on in the process.
There are several factors to consider when approaching a negotiation including whether the deal is balanced on both sides. There should be shared goals, common objectives and a mutual relationship with the entrepreneur or this may not be a good fit for both parties at the table.
What does it mean to have shared goals and common interests?
The entrepreneur may have specific goals related to the future growth of the company, but these goals may conflict with your priorities. For instance, if you are passionate about supporting the local community and see the startup as a means to improve the economy, but the entrepreneur has plans to relocate the business after it reaches a certain size, then this could be a potential conflict.
If jobs are created and tourism increases in your city, but the business moves to a another city due to tax incentives or the need for future venture capitalist support, then your original motivation for improving the local economy is no longer being met.
However, the founder may be less concerned with the community and more concerned with developing support for their next tier of business development. One interesting Forbes article that discusses angel investors that support small towns talks about a potential conflict when follow-on Venture Capital is not available locally and/or companies often need to move to where VCs are located.
It’s important that the founder communicates this at the table, and equally important for the investor to ask about the founders future plans as part of the negotiation.
Conflicts may also arise if angel investors are interested in regular communication related to the growth of the business, but the entrepreneur becomes reluctant to share details when the business is suffering.
A founder’s need to maintain control over the company can cause growing pains during the expansion phase, if the founder is not open to benefiting from an investor’s experience or level of expertise in the industry. Investors may also desire to offer support, especially if they have had several successful ventures of their own in the past, but the founder may not want them involved in the decision making process.
Hopefully, by the time you’ve done your due diligence you’ll be drawn to a startup because of the shared goals and common interest, However, it’s important the founder doesn’t mislead you at the negotiation table because they are eager for the money and less interested in making this work all around for both sides.