Last night I listened to attorney Karen McKercher presenting tips for negotiating an investment deal to a group of angel investors (the Willamette Angel Conference members). I think her list of five points is good reading for both sides of the table, both startup founders and angel investors. Here’s a summary (points are Karen’s, and the explanations are my summary):
If a deal isn’t good for both sides, it isn’t a good deal. An investment begins a deep mutual relationship. Both sides have to have shared goals, common objectives.
The deal lead should have specific industry experience. Deal lead in this context refers to the one angel investor who leads the negotiation for the group of angel investors.
Solid legal advice
Use an experienced lawyer. She means experience in the specifics of negotiating investment deals between investors and entrepreneurs.
Don’t over-negotiate. It happens a lot; people focus too hard on the negotiation process and end up spending too much time and money because of too much focus on relatively unimportant details.
Observe behavior. The negotiating is about creating a long-term business partnership between investors and entrepreneurs. There are things people can do that indicate the long term isn’t going to work out. Do you want to do business with these people? It’s a question both sides should be asking. Negotiations can reveal a lot about the way people approach business and, for that matter, life.
Entrepreneurs: keep this list in mind as you negotiate with investors. It will help you understand what they are thinking.