What not to Say to the Venture Capitalist while Negotiating
Printer Print Email Email
What not to Say to the Venture Capitalist while Negotiating
Fremont: A famous quote by Acheson goes, "Negotiating in the classic diplomatic sense assumes parties more anxious to agree than to disagree." Being an entrepreneur, you will be a part of every negotiation for the business. There would be several other people who might join you to help make the bargain, but the venture capitalists would always be on the lookout for some loopholes, which would give them an edge over you. You might be a very good speaker, and an excellent person in bargaining, but when it boils down to negotiating with the VCs, there are certain points that you should take care of. When a panel consisting of the finance team goes to talk to the VCs, they get a cushion time since they have to come back and talk to the CEO, and get his approval too. Since you are the sole owner, you would be the key decision maker. The VCs would get a feel that since you are the key decision maker, you would be in a position to make spot decisions--but this might not always be the right idea. Getting the extra time would help you refine the whole deal and rethink if there is anything extra that needs to be talked about. Let the VCs feel that there is another person, maybe a co-partner, whose say is equally important to you before giving the final nod. When you give a price range to a VC, they feel that it is a loophole, and that they can take a concession in the funds. Don't give them this opportunity; rather quote the exact figure that is required by the business so that there is no scope for ambiguity. Price ranges are given to suppliers or customers, not to those from funds are expected. Different people have different opinions on whether you should make the first step or not, but generally its better if you are not the first person to quote a price, as it puts you at a disadvantage. Let them tell their expectations, so that you can build around it and then quote what you anticipated. It is noted that when the seller quotes first, the final price that he has to settle for it higher than what he would get when the buyer quotes first. Many of the entrepreneurs commit the mistake of showing their enthusiasm of the closure of the deal to the VC, which makes the VC feel that you are just concerned about getting the money and be done with it. This creates a very bad impression of the VC, and it might trigger a next round of negotiations--which might be a very bad idea. The moment you so badly want the deal to be closed is when your despair is reflected, and that is enough for a shrewd VC to pounce upon. Negotiating is an art, which can be perfected by practice. Getting the right VC and adequate amounts of funds is what is important for an entrepreneur, for which he should take careful steps for negotiating a deal is like walking on a tight-rope.

siliconindia