As a young startup founder, you have successfully created your idea. You have conducted all the interviews and hired the necessary staff. Along with your colleagues, you have booked the required office space and arranged for the accessories. Also, the marketing teams have been finalized for promotion and advertising activities. So, now comes the most critical question.
How to arrange an investment? In this era of uncertainty, banks are quite hesitant to lend to new startup owners and founders, due to the fear of nonperforming loans. So, let us examine the most successful ways of negotiating with various types of financers and investors.
1) There should be exact clarity of your requirements and aspirations while undergoing negotiations.
Clarity of requirements and expectations is of paramount importance while negotiating with the investors. It will give you strength for negotiations, due to the inner conviction within yourself. You may dissuade prospective investors if you are unclear about the business requirements. In the meetings, you must never show the term sheet initially. Always wait for a while, for the investor to tell their terms. You must listen to your investors and which part of your business excites the investors. This will indicate your firm’s weaknesses and strengths.
2) Your preparation should be complete. Otherwise, you will meet complete failure.
If you are unprepared, then there is a high likelihood that the negotiations will fail. To explain it in more precise words, what is the investment opportunity for the investor? Will it be fruitful in the long run? What are the motives economically? Whenever there is a meeting, you must have a readymade plan. You must make proper investment plans before a proper meeting.
For example, there should be a meeting plan, in which there should be specific non-negotiable points and some points, which are flexible. Also, you must conduct thorough research by looking at their profile in Crunchbase. You will be able to understand whether they have invested in your sector, stage, and competitor. You can also skip Twitter accounts, blogs, and acquire a complete view of interests and biases.
3) Always negotiate by having a good alternative.
If you desire the best terms, then you must always have a good alternative. Good backups plan will always provide you with bargaining power, which the other individual will not be able to exploit. Because you will know very quickly whether this is the right investor and who you can assist in a long-term relationship. Along with negotiations, you must simultaneously search for alternatives.
4) Always ask many questions and be very challenging.
If you are an excellent negotiator, you should ask a lot of questions and be very challenging. You must require clarification of answers and always ask a summary of responses. It will surely help you to verify whether your understanding is correct. You will assess the investor’s faith in your team and the firm by the terms he proposes. As a customer, you can ask questions about the excitement of the individual about their firm’s enthusiasm and involvement.
5) Trust is essential, and there should be no deception and over-commitment.
During negotiations, there should be complete trust between you and the investor. Never promise something which you will not be able to deliver. You should lay down the terms and conditions in the project plan. If you lie, then it will tremendously increase the premium of the risk and lower the confidence. If you are developing, say mobile apps, you should never tell the opposing party that it will be a cross-hybrid app instead of IoS or Android apps, for which you require more money. Also, for hybrid apps, you need to hire much more expensive developers.
6) The real decision-maker should be identified.
In the negotiations, both parties like the investor and your firm must be very clear about the real decision-maker. You must know, the ultimate decision-maker. For example, during negotiations with the investors, there are many instances where the Chief Executive Officer, instead of the Chief Financial Officer, or the Business Analyst has done the deal. So, in this scenario, the CEO or BA is the real decision-maker. The main issue is that you, as a company, must know with whom the investor is more comfortable and make him as a decision-maker, to get the best terms. References can be beneficial, for example, if you are acquainted with the person who will invest.
7) The investor must have a keen interest in the objectives of your company.
The investor must have a keen interest in the company’s objectives. To cite an example, if your company believes the customer is the king, then the party with whom you are discussing must also think the same. That they should be willing to spend extra money if your company aims to provide exceptional quality to your customers, within the same price. So, the financer must be highly engrossed in your firm’s motto, observe the results, and stay with you extended time to get consistent results.
In this article, readers will be highly aware of the art of successful negotiations with investors. You will become aware of how to talk to financers to get the best terms for your fledgling startup. Since there is fierce competition for financers, among new companies, so it will be beneficial if you follow all these tips.