Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

11

The Art of the Angel Deal

Negotiating a Win/Win Relationship with Your Entrepreneur

IN ECONOMICS AND in game theory, there are two classes of engagements: zero sum and positive sum. The former describes a contest in which there are a fixed number of resources and a fixed number of players. For one player to gain resources, or win, the other player(s) must give up resources, or lose. The combined total change of all players during the game is therefore zero. In a positive sum game, however, both sides can gain at the same time, and often gain more by cooperating than by acting on their own.*

If the negotiating version of a positive-sum game—the notion of a win/win outcome—applies anywhere, it applies to the crafting of an agreement between an angel investor and an entrepreneur. After all, what is being negotiated isn't a one-time deal from which both parties walk away without further interaction, but rather a long-term partnership whose goal is to produce value for both parties.

Negotiating investment deals can be simple or complex, easy or hard, enjoyable or agonizing. Which way the process goes is dependent on several variables including the participants' integrity, knowledge, relative power position, and personal style.

Integrity and Knowledge

The basic ground rule is that you should always be completely straightforward and honest in your interactions with entrepreneurs seeking funding. Always! As I counseled you in Chapter 6 to immediately walk away if you pick up the slightest ...