Negotiating With Investors
Negotiations can be a difficult time for entrepreneurs, especially those who have not been there before. Here are some tips from entrepreneurs who have been there before.
- Speak to objective (i.e., those who do not invest in your sector) investors about how they would value your company, and use their estimate.
- Run through several valuation methods to have a better understanding of how they might structure their pitch. There are resources online that will walk you through how to value your company (see a list of resources in the conclusion).
- Be able to explain your projected numbers and your assumptions behind them. Investors will push back on everything you will tell them, so have an answer ready for multiple scenarios of the business. Practice makes perfect – go through the pitch with your friends or in front of a mirror.
- Bring a draft term sheet to the pitch meeting, to anchor the investors to the terms of the deal you would like – you are more likely to walk away with better terms if you put your cards on the table first.
- Get external advice – most entrepreneurs will negotiate anywhere between one to five times with equity investors during the life of their start-up. A typical investor handles a similar number of negotiations a week. This means that odds are most often with the investor, and a good advisor could help to even the negotiation table.