Before this book, I thought that all Angel Investors and Entrepreneurs did was negotiate. And of course, ABC’s Shark Tank supports that notion. I did believe that every time that an Angel or Venture Capitalist reviewed a deal it would be a negotiation. This section like the others we find out there is more to it than what our predetermined thoughts may be. To think that that to negotiate hard before an angel would invest may hurt more than it would be worst is a little counter intuitive. An Angel certainly needs to keep their eye on what the best fit would be as well as their predetermined strategy.
Amis and Stevenson state early in the section that “winning investors simply do not negotiate.” Either the deal fits their overall strategy, or it does not, either they have chemistry with the entrepreneur, or they do not. Some just see it as a waste of their time and would rather not disrupt the health of the Start-up or rattle the entrepreneur from the start. “Many of the same angels who do not want to focus on structure will also not want to spend time on negotiating, even to reduce the price.” Many feel that starting off the relationship with the entrepreneur in the right direction is worth more than making them regret any value that got negotiated from them. The bigger picture may be the overall health of the start-up versus having a disgruntled entrepreneur or a leveraged investment that is not as attractive to second round investors.
I think one of the most important things for an Angelis for them to take a hard and honest look at what they are ultimately trying to achieve. Strategizing and outlining their needs and interest in a One-Pager will help to keep them on track as well as give entrepreneurs up front information to assessing if the relationship would be a great match or not. I think this sets a lot of ground expectations between both parties. This can also help the Angel stay on the path of what their overall strategy and not allow emotions like ego or greed to drive the opportunity. I got a lot out of figure 41.1 in the book that highlights that clear positions and stances from both the entrepreneur as well as the angel allows for clarity with any issues that would need to be resolved to reach a deal. Organization and clarity are most important for both parties involved.
Amis and Stevenson point out that “angels who negotiate are more likely to have an active role in their investment.” I think that is an important point as the drive to negotiate came from the need to have some control. The negotiating action may come from an internal need or can be strategic and well thought out. Whatever the reason, it is important to have an end in mind or you may just negotiate for something that may not be important for you.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.