Yesterday we had two guests from Foundry Group. First, we heard from Seth Levine on Pricing and later in the afternoon Jason Mendelson came in to talk about negotiating. For those that don’t know Jason, he is an extremely experienced ex-Attorney/Lawyer turned Venture Capitalists and Adjunct Professor at the University of Colorado School of Law with Brad Bernthal…oh yeah, and a drummer!
Here are 3 opinions Jason holds about negotiations:
1. Getting to a good and fair result.
2. Understand the deal being negotiated.
3. Don’t F up your reputation!
Negotiating isn’t just about winning or deal systems, it’s about the ecosystem and about winning not just the battle(s) but also the war.
One common misconception is that lawyers are good negotiators; that’s not necessarily true, but they aren’t the only bad negotiators. An example what bad negotiators love to do and why they are bad at negotiation; When a company asks for more points on a term sheet or something of the sort… the negotiator says “it’s not market”… This is usually BS, is there a publishing of what is “market”? This is just a cop out they use. The better answer is to explain why that term doesn’t make sense for your business.
Two of the most common mistakes when negotiating:
1. Not being prepared.
2. Not knowing when to walk away.
More insights from Jason:
“You never lose a point when your lips aren’t moving”. It is far better to think before you speak than risk coming off (especially to investors) in a negative way. This especially resonated with me as I am learning to be more thoughtful with my words. As an extrovert, I find myself thinking out loud or with other people. I am working on thinking through ideas before I just let them out into the world.
“Every interaction is a negotiation (yes i know it sounds cynical but it is mostly true)”
You negotiate everyday of your life!
If an investor gives you a term sheet, that term sheet means a hell of a lot more to the party it was given to than the investor who has ten other term sheets pending and a life outside this single deal. However, Jason talked about how we all have an advantage in a negotiation. In this scenario, the person given the term sheet has the advantage of time over a busy VC. They can do the extra research, work later and push harder than the investor might have time to deal with. If done in the right way, there is a fine balance between annoying and asking someone when it is easiest for them to say yes. The investor might just not have time to argue or debate your last few points (as long as they are not ridiculous) and will give in to just be done with the deal. Again, this is a fine balance between persistence and being overly annoying. Remember, time is usually on the side of the investee so use it and anything else you can to your advantage.
These were just a few of the interesting take-aways Jason left us with at Techstars Boulder. I feel honored everyday to be apart of this program and the learning opportunities that it brings.