key points first
know the aims
it is vital to know the aims of the negotiations before they take place. the negotiation team has to decide beforehand what they aim for and how much compromise is acceptable.
one way to do that is to sit down for half an hour, discuss, decide and write down the aims to visualize and remember. then destroy the paper, as it must not be seen by the vc by any accident in the meeting afterwords. this holds for each separate meeting. no-one alone compromises the agreed terms in face of the investor. if a rethinking of the agreed aims is necessary, a break out session is necessary.
break out sessions
they are a common way to take speed or emotion out of tense negotiations. every party gets time to rethink, to cool down or to gather required information. start.ups can co-ordinate their negotiation aims. whenever necessary break-out. rather one break out session too much than having agreed to anything without realizing what it means. having experts on stand-by is recommended.
experts on stand-by
lawyers, technical experts, general advisers or friends are source for support during negotiations. they are to be informed ahead so they can be reached when required.
know the terms
drag along, take along, liquidation preference, right of first refusal, pre-post money valuation, milestones, catch-up, pay to play, ratchet, signing-closing, advisory board, due-diligence,... they all can be looked up. e.g. on investopedia or wikipedia. this is investment language, nothing really complicated about. one just has to be able to deal with them, know them by heart and be able to „play“ - meaning negotiate on the different aspects - them.
bad negotiation results can not be excused with tiredness. if necessary take break outs, get food, go scream on the balcony - whatever is necessary. then get back and keep negotiating hard.
vc are (also) humans. they have hobbies, family, worries, hopes. they are like everyone else. avoid the hawks through checking their references (discussed here).
heart & hard
being respectful and friendly is key. negotiating hard at the same time is no contradiction. not only for the negotiations and the daily life after with vc. it also holds for customers, suppliers, sales partners or employees.
at the end of a long negotiation process both parties are supposed to be unhappy with the results - but still happy to have closed the deal. with the negotiations finalized and vc money injected it is all about fulfilling and surviving. more on why it is necessary to deliver in the upcoming sixth and final part of „six steps to venture capital“.
recommendations: 1) define aims: time line & term sheet key elements, 2) take break outs, 3) have experts on stand-by and 4) know the terms.
in the final part of the series six step to venture capital read on how to survive after the investment. clearly not a trivial task.