How Do You Negotiate With Investors?

I was so excited when we got the term sheet from the investor. Then I looked at the numbers.

The deal sucked. The investor was taking more than the normal percentage at this stage.

But I was confident I could negotiate a better deal. The investor was flying to his home on Maui, so we arranged a time to talk the next day after he landed.

Things only got worse when I got on the phone with him.

I made a reasonable counter offer. His response was, “There is no negotiation.”

I tried again. His response again was, “There is no negotiation.”

Then, he said, “I think this term sheet explodes like a pumpkin in a few hours. Call me back before then if you accept our terms.”

Then he hung up the phone.

Doesn’t everyone negotiate? Not this investor. He didn’t need to negotiate because he had all the leverage.

He knew we had been trying to raise money for almost two years. He knew that a lot of investors passed on us already (63 at that point). He knew there were only so many investors that would be interested in investing in our company.

I called our lawyer and asked her what to do. Then I called my advisor, Dave, and I asked him what to do. Then I called our other potential investor, and I asked him what to do.

They all said the same thing, “Take the deal.”

Taking the deal was the right thing for us to do, so I called the investor back and accepted his terms.

The only way you can successfully negotiate with an investor is if there is competition from another investor.

If there’s competition, then you can negotiate for the best deal possible. Otherwise, you’re stuck.

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