5 Tips on Negotiating a VC Deal
Getting a “yes” answer from a venture capital firm can be an exciting time for an entrepreneur who’s trying to raise capital for his new start up business. But an approval only means progressing to the next stage of getting the venture funding: the negotiations.
Negotiating a venture capital deal can look daunting, especially to a new entrepreneur who has not “gone through the ropes” of the entire venture funding process. Most VC firms realize this fact and subsequently have an upper hand in most deals. However, you can succeed in VC firm negotiations if you follow these helpful tips:
1. Never Negotiate When You’re Desperate for Capital
If you need money NOW, you are at a steep disadvantage at the negotiating table. When you are desperate, you may be willing to give up too much in the negotiations, which means you will be left with a deal that doesn’t benefit your new company as well as you had hoped.
2. Know the Quality of VC Firm You Are Dealing With
You should always ask yourself, “Are these the type of people with whom I want to partner?” Keep in mind that a quality VC firm provides much more than just funding, and a good partner may be worth giving up some points during the negotiations. A VC firm that can help guide the business growth process is worth its weight in the coins they invest. Ask other startup companies, and check references (they check yours…why shouldn’t you check theirs?).
3. Retain a Good Lawyer
Having a legal specialist in your corner is always a wise choice. Find an attorney who has had previous experience with venture funding. Your attorney will be able to point out potential hazards in a deal and suggest negotiating points.
4. Keep the Big Picture in Mind
It is easy to get caught up fighting for relatively unimportant negotiating elements. Know which brides you are willing to die on, as well as the ones where you can let the water run their way. Choose your battles, and keep the big picture in mind – and that is getting the funding you need from an investor you trust.
5. Treat Negotiations as a Partnership
In negotiations, treating your venture capital firm like a partner will have better results than treating them like an adversary. Negotiations should be friendly, but with your points stated firmly. Know that there is some give and take with negotiations. Reaching an agreement will be more satisfying when you consider that the VC firm is there to help you and your company succeed – not to take over your company.