Much is written about how to attract business angels to invest in your business, but where is the advice for entrepreneurs on how to negotiate a good deal?
A visit to my local electrical store the other day got me thinking about how satisfying it can be to get a good deal, but also how difficult it can be to avoid some of the pitfalls while negotiating it.
Though I’m not usually the type of person who gets caught up in a craze, I finally gave in and decided to get myself an iPad I thought now would be a good time to invest in one, finally convincing myself that this is something I must have. I also needed a new laptop after the death of my hard drive this week. In the present economic climate I figured that going in with the intention to purchase these two items would get me a good deal, after all, both involved a significant outlay.
The problem was my attempt to confuse the salesperson was met with an equally clever attempt to confuse me. What started as a simple attempt to get a discount turned into a battle of wills and the introduction of a host of additional products I didn’t need but which were being “thrown in” to sweeten the deal. The smiling salesperson came back with what he said was “the deal of the century.”
Knowing there is no such thing, after more haggling I managed to get a further 18% discount as well as a case and some cleaner which I didn’t really need but was nice to have.
This experience got me thinking, if this is what you get in a shop how hard can it be for entrepreneurs who manage to get their idea in front of a business angel and then have to go through all the negotiating to get a good deal? For those who are financially astute and good at mental arithmetic this shouldn’t be a problem, but what if you are an inventor who wants funding to get a product to market, but who lacks valuable skills when it comes to negotiating a good deal?
Business angels will invariably want a decent piece of the action in the form of an equity stake that will eat into any money the entrepreneur will make. Many will of course throw you an array of added benefits from their involvement including mentoring, ‘the contacts to make it happen’, experience in your industry sector etc etc. but don’t forget that like the salesperson in the electrical store, they will be looking to make a bit of money out of you and your idea in the process.
The words business angel conjures up a cosy image of someone who only wants to help, but given the risks they take with early stage companies, can these business angels really be in it just to help out? Of course not! They are little different from your average salesperson on a commission.
A quick browse on the Internet will reveal some cautionary tales about inventors who have fallen victim to greedy investors out to exploit them. One unfortunate inventor/entrepreneur managed to walk away with some investment from the online version of Dragon’s Den, fantastic! He might have thought, but having arrived with the intention of only giving away 20% equity, he left the Den after giving away a staggering 70%!
This highlights one very important skill an entrepreneur needs to be successful – the ability to negotiate.
Negotiating a good deal on everything relating to your business is essential and this includes those times when you need to source funding for your business. It is important to be single minded in your approach and not be influenced or confused by the promise of added benefits that will steer you away from your original intentions.
If you really need funding for your business you must also have enough belief in your idea to walk away if the deal isn’t right for you, whether or not it is funding from a business angel. If your business angel or group of angel investors really believe in your idea, you can and will negotiate fair terms.