By John Finnemore, Partner, Nabarro LLP
Negotiating with your potential investors can be a very tough process. They have shown interest in your business and want to work with you to create growth. They have the capital you urgently need. They have the contacts that can allow you to accelerate your sales and marketing efforts. So how do you approach negotiation of the key terms of the investment without upsetting the investor?
We have five top tips:
- Get a term sheet. Spend some time with your lawyer setting out your best position. Try not to be too aggressive or demanding in that process; it is better to look for a middle ground you can work with up front rather than trying to start from an aggressive, company friendly position;
- Identify some lines over which you will not cross. It is a good idea to determine the three key points you want to win and how far you will be pushed on those. Know, and stick to, your limit on that point. These typically relate to the valuation of the company and controls that you, as a founder, will have without needing the investor’s input. Doing this means will reduce the changes of remorse that you have given away too much once the investment is done;
- Get a lawyer to play bad cop. It is easy to blame the lawyer for bringing up points and negotiations to be had. Use them as the focus for the negativity (if any) which arises if you want to discuss a point;
- Narrow the issues down. If you feel negotiations by email or in person are drifting from point to point without focus, ask the investor to list the points of concern they have. Confirm with them those are the only points. Then take a break/wait before responding to get some advice or consider what has been said. That time to look at the position will assist in crystallising the key issues and negotiating what matters; and
- Drink beer/coffee. Once you are done and the documents are signed, have a beer or a coffee with the investor to put that process behind you. What is key now is the future business relationship and making that a success.