Investors are looking for viable businesses to fund. On the other hand, entrepreneurs are looking for investors to take their ideas to the next level. Each seeks to get the best value. It therefore remains an issue of who strikes the best deal. How do you negotiate the best deal for your startup or business?
Know What You Need
Investors are experienced and understand how businesses operate. While they are out to help you make the most of your idea, they are also out to make money. They are therefore going to squeeze you to the last bit in an attempt to get the lion share of the deal. To protect your interest, know the amount of money you need, what it will do for the business and what you are willing to give in return.
The money is always an estimate. There are unforeseen eventualities that will arise in the course of implementation of your plan. Provide room for contingencies when drafting the proposal. Such contingencies may take up your share yet the profits, margins or shares had already been negotiated. By failing to know what you want, you will be giving a clean slate to the investor to determine how much he will take from you. This will be suicidal for your business.
Balance Interests On Both Sides
This is one of the trickiest things you will ever do as an investor. Business relationships are mutual. An investor will only provide money where he can see returns. As such, if the deal is weighing too heavily on your side, it will chase away potential investors. Strike a balance that gives equal value to the investor as it does to you.
How does a balanced deal look like? It reflects realistic revenue projections and apportions equity based on what the investor is bringing. If the investor feels like you are benefiting more from his money, he will not invest with you. This will stifle your business or idea of cash leading to its death. Work with an expert to determine the perfect equity based on the value the investor is bringing to your business.
Be Realistic Yet Optimistic With Your Numbers
Investors have already made money and are quick to spot deceptive figures. When presenting figures, be realistic. The figures quoted on stock must relate to your expenses, operations and profits. Any overestimation will be termed as dishonest, ending your quest for funding since no investor wants to deal with a dishonest person.
This is not a call to be pessimistic about your figures. In fact, investors know that you will be optimistic about figures. However, reality will be seen within the cracks of your presentation. All the investors are looking for is a demonstration of what you have done with the meager resources. If your performance has been impressive, they will be willing to give you more. Do not assume that they are ignorant. They understand the business environment and are rather difficult to fool.
Protect Your Controlling Stake
The growth of businesses is anchored on decision making. Decisions are made based on the control a person or entity has over the business. With this in mind, remember that you are at the best position to steer the idea or business. This will prove impossible without a controlling stake. Once you cede the controlling stake, you become a minority shareholder who can even be edged out.
While capital is important and partnerships valuable, you must never give up your control over the idea. When decisions are in the hands of people who are not well versed with your idea and business plan, you are on a path to lose. It is only in an LLC arrangement where you have special rights over the majority even with minority shareholding.
Documents Must Be Brought To The Meeting
Getting someone to listen or even consider your proposal requires a sweet story. However, the story will not win the deal. The deal is only sealed when documents are provided. Carry documents to proof your assertions. For instance, if you claim to own the company or copyrights to an invention, the investor will ask for proof. If you have made consistent profits with the product or have signed a supply deal, the investor wants to see bank statements and orders. You do not have to defend your idea using a lot of words. The documents will be proof that the idea is viable.
Get Legal Briefing And Carry The Lawyer With You
Once a document is signed, it becomes a legally binding agreement. Because of their experience and the desire to gain a better deal, you are likely to be edged out of your business on technicality. Learn as much legal basis about negotiations as possible. Know what different terms means and their implication on your business and interactions.
Negotiations are about the details of the transactions. The more experienced and witty your lawyer will be, the better for you. There are lawyers who specialize in partnerships and will thus deliver the best deal on your behalf. You need to brief the lawyer on all your expectations. He needs to know as much as possible about the business. This makes the negotiations open and reduces negotiating time since all details will be laid on the table. Leave room for consultation in between negotiations to deal with arising issues.
Confidence Will Win The Deal For You
In business, it still applies that ‘Nobody gets a second chance to make a first impression’. Your appearance during the negotiations will determine the long term warmth of your relationship. Your words could indicate that a long term relationship is impossible. Choose words carefully to instill confidence and thus build a lasting relationship. You need to be confident, optimistic and passionate about the deal. Represent the brand not just as it is now but as you expect it to be in future.
Negotiations are about two parties. They are also about building long term relationships. It is your presentation that will win the confidence of investors or chase them away. Be firm but do not adapt a hard line stand. Endeavor to get the best deal for you as an entrepreneur and long term value through the partnership.