Negotiating – Winning Angels: the 7 fundamentals of early-stage investing.

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. 

Reference:

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

6 thoughts on “Negotiating – Winning Angels: the 7 fundamentals of early-stage investing.

  1. Nice post, Jeramy. Three points, in particular, that I like:

    1. Your assertion that investors may choose not to negotiate because they already have their eye on the second round is spot on. There’s a certain savvy that most angel investors possess and this is an example of that. Instead of getting caught up in initial details that may derail a partnership or damage a relationship, investors are playing the long game knowing that the real money will be made when the business makes the second round.

    2. I’ve thought a lot about the importance of simplicity but you bring up another important element that’s tied to simplicity: clarity. Clarity and organization provide the groundwork for simplicity. When both parties are intentionally transparent in their dealings with the other, unnecessary errors can be avoided. This helps preserve the relationship and the path forward.

    3. You’re correct that having the end in mind when entering a negotiation is critical. While this may seem obvious, too often a person will either fail to think through what they want to accomplish or lose sight of that goal during the meeting as emotions take hold. Successful negotiation occurs when you stay focused on the end game.

    Good work!

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  2. Great work on your post regarding negotiation! Mistakenly, I also was under the impression that all investors participate in the negotiation process, and I was surprised to learn that some investors have a third-party negotiate on their behalf and others either accept a proposal as-is or choose to pass on it completely. Fantastic post!

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  3. Hi Jeremy,
    I really didn’t know much about investors prior to this class, but I would also assume that negotiating would be a really important part of the deal. I haven’t watched Shark Tank but a few times, and that gave me the same impression. I also sort of looked at the investments as almost a windfall for the entrepreneur. Now I understand that better. It would be interesting to understand the financial status of various entrepreneurs that find investors. How many of them are already financial stable with no concerns, compared to how many have to make it work, because their financial life depends on it. I wonder how those make it through, while their trying to get their business value up.

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  4. Hi Jeramy,

    I am a big fan of Shark Tank and have watched it religiously for years. It is truly a misrepresentation of what negotiating really is. I do think the sharks who try to negotiate more do it for control, on the other hands you have the ones who say take it or leave it. When it comes down to it, each shark knows early of if the venture is something they want to invest in or not. I believe negotiating is far more complex than it is depicted on Shark Tank. I enjoyed reading your post.

    Best,
    Shannon

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  5. Hi Jeramy,

    I am a big fan of Shark Tank and have watched it religiously for years. It is truly a misrepresentation of what negotiating really is. I do think the sharks who try to negotiate more do it for control, on the other hands you have the ones who say take it or leave it. When it comes down to it, each shark knows early off if the venture is something they want to invest in or not. I believe negotiating is far more complex than it is depicted on Shark Tank. I enjoyed reading your post.

    Best,
    Shannon

    Like

  6. I know that the book is a bit old, but I wonder if investment negotiations have changed over time.Is it possible that maybe in today’s business world, the focus has shifted from maintaining good relationships to just making a profit? I like the idea of negotiating, and would almost expect to, but I can see how it might be offensive to some entrepreneurs.

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