ENT640 – Winning Angels -Negotiating
Last Friday night I had the opportunity to watch some television. The remote is not the first thing I grab if I have some down town. Usually it’s closing my eyes. As I scrolled, I came across SHARK TANK (ABC). I call it the 20th century let’s make a deal. It is motivating to see how they all came from humble beginnings, yet with perseverance are now the shot callers to make dreams come true. They all have different personalities yet their commonality make each one a force to be reckoned with when it comes to negotiating.
Amis and Stevenson believe, “How you think about negotiation is important not only because it impacts the terms, price, and overall structure of the deal, but also because it is a prelude to the highly interdependent relationship formed between the investor and the entrepreneur.” (2001, pg. 225) At the end of a deal, the investor gives the entrepreneurs a hug instead of just handshakes. Even though negotiations usually involve “structure (terms), price, amount of capital that will be invested and role,” the entering of personal space with an embrace points to a deeper relationship than just clicking a button to invest. (p. 225)
Amis and Stevenson tell us to consider “your preferred role, time availability, preferred relationship with the entrepreneur, whether you are the lead investor, and the amount of capital you tend to invest” for determining your negotiation strategy. (pg.225) Last night’s episode brought a few deals where young and eager entrepreneurs already had lead investors. I saw how a good deal was no longer attractive because of their secondary position. Of course at that point there was no relationship with the entrepreneur and the amount of capital was not a huge concern. The timing of when an investor receives the return-on-invest (ROI) is crucial to the deal. It’s a difference to wait and be first in line, but to wait and to be second is not an attractive view for the risk.
I watched as the interested investors negotiated the terms rather than the price and deals were at $100,000, which is change for a millionaire. “By giving the entrepreneur their own proposed terms, it should be hard for them to regret it later.” (pg. 226) Here again we are looking at relationship. But that relationship does not trump ROI. Of the four investors at least two “take a pass” leaving them to drill down until they strike water or pull out beforehand. The investors do exactly as Amis and Stevenson propose when taking a pass. They let them know with “positive feelings about the project (rejection is always a sensitive undertaking) along with whatever issues led [them] to [their] conclusion.” (pg. 227) And they do it with a smile; it’s not personal, just business.
Negotiating is like a work of art. The entrepreneur brings the canvas and the brush bidding the investor to provide the paint for their picture. But are the colors right to make this a masterpiece that they envisioned? Or will there be compromising to make this vision a tangible offering in the marketplace? Only the entrepreneur can decide.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.
Burnett, M. (Producer). (2017, June 16). Shark Tank [Television series episode]. In Shark Tank. ABC.