Chapter 6

Becoming a Formidable Negotiator

You have been successful in securing sufficient interest from a prospective investor to engage in negotiations to determine possible terms of funding. A combination of effective prospectus documents and funding presentations and the independent research and inquiries of the prospective investor, now to be the counterparty in negotiations with you, has resulted in the intended outcome. However, the fun has just started. Counterparties are buyers with the intent to purchase your equity at the lowest price for them or lend you funds at the highest cost of capital to you. Simultaneously they will attempt to inject terms that will give them greater control and reduce their perceived risks, often at the expense of the founding partners and other current stakeholders. They are certainly justified to pursue their intentions. You have a strong fiduciary responsibility to negotiate in the best interests of the current shareholders while securing the acceptance of terms from your possibly soon-to-be newest stakeholder and business partner. Negotiating funding terms is both the most challenging and the most critical endeavor for the management team of an entrepreneurial venture. Strict adherence to your well-conceived financial plan will serve as a valuable guide. Accumulation of know your investor (KYI) knowledge discussed in Chapter 2 provides additional support. What remain are your skills as a negotiator. This chapter helps you sharpen those negotiating ...

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