As I hear from many business people, for some, negotiation is their most fun and favorite part when they are doing business. In angel investing, when it comes to negotiate the terms and price on an investment deal, the negotiation may or may not take place, depends on the circumstance and the stage. Due to using some winning tools and strategies that the investor either may not focus on the negotiating, they just asks someone else to do it for them or they really get involved in negotiation.
Negotiating is a time-consuming process and quite stressful for some people. However, “the negotiation need not be unpleasant”, said the authors Amis, D. and Stevenson, H. Winning Angels: The 7 Fundamentals of Early Stage Investing. Pearson Education Limited, 2001.
What are objectives of the negotiation?
- The price
- The structure of the deal
- How much money they will invest
- What role they will play, if any. < (in my mind this is so important)
What are the key issues which may need to be defined and agreed upon?
- Control of the company
- Modifying the Management team
- Company Proprietary Rights
- Multiple exit opportunities
- Lock-Up Rights
- And if they want to help in areas needed
There are also the angels and entrepreneur each will have their own additional wish list and or issues to bring to the table.
Why some angels who do not negotiate? Because
- it may not be the time yet, and they don’t want to bring out the conflict that may affect the relationship;
- sometimes they just put the negotiating off and wait till the second round to begin the negotiate.
- “the angels will wait for an additional capital round where more significant capital is needed and then negotiate any special terms.”
- some angels are not interested at the price or terms.
- some get a front man (other investor or one of their advisors) to do the negotiating with the entrepreneur.
- some angel investors send the entrepreneur on a mission, they want to see the reality of the entrepreneur’s working habit and abilities of approaching and handling business.
- Some investors are always looking for signs that let them know the business that they would invest in is more than just a good idea.
- some want to see the deep mutual relationship first that share long-term business partnership, the goals and getting improved value before writing a check.
Why some angels who do negotiate? Because,
- “they are more likely to have an active role in their investment”. They would have great experience and would be able to lead the negotiation for the group of other investors.
- they may found the balanced interest in the deal
- some “like to negotiate to see how the entrepreneur thinks”
- some “like to use the negotiation as a test”
- some may just use one-time offer, take it or leave it option for the entrepreneur. They don’t want to spend too much time and energy on negotiation process.
Amis, D. and Stevenson, H. Winning Angels: The 7 Fundamentals of Early Stage Investing. Pearson Education Limited, 2001.