How can you negotiate a startup deal?

1 Know your value

Before you enter any negotiation, you need to have a clear idea of what your startup is worth and what you are willing to offer. This means doing your homework on your market, your traction, your growth potential, and your competitive advantage. You also need to understand the different types of startup funding sources, such as angel investors, venture capitalists, crowdfunding, or bootstrapping, and how they affect your valuation and equity. You should have a realistic range of values that you can justify with data and evidence, and be ready to explain why your startup deserves that valuation.

2 Know your investors

Another key aspect of negotiation is knowing who you are dealing with and what they are looking for. You should research your potential investors' backgrounds, portfolios, investment criteria, and preferences. You should also try to establish rapport and trust with them, by being transparent, honest, and respectful. You should aim to find investors who share your vision, values, and goals, and who can offer more than just money, such as mentorship, connections, or expertise. You should also be aware of any red flags or deal-breakers that might jeopardize the negotiation, such as unrealistic terms, excessive control, or lack of commitment.

3 Know your terms

Once you have a clear value proposition and a shortlist of suitable investors, you need to negotiate the terms of the deal. This includes the amount of money you are raising, the percentage of equity you are giving up, the valuation of your startup, the type of securities you are issuing, and the rights and obligations of both parties. You should have a term sheet that outlines the main points of the deal, and a lawyer who can review and advise you on the legal implications. You should also be prepared to negotiate on other aspects of the deal, such as milestones, vesting, board seats, or exit clauses.

4 Know your alternatives

One of the most important factors in negotiation is your BATNA, or best alternative to a negotiated agreement. This is the option that you have if the negotiation fails or the deal falls through. You should always have a backup plan in case things don't go your way, such as another investor, another funding source, or another strategy. Having a BATNA gives you leverage and confidence in the negotiation, as you can walk away from a bad deal or ask for better terms. You should also know your investors' BATNAs, as this can help you understand their motivations and expectations.

5 Know your timing

Finally, you need to know when to start, when to pause, and when to end the negotiation. You should start the negotiation when you have a strong value proposition, a solid traction, and a clear vision for your startup. You should also try to create a sense of urgency and competition, by having multiple investors interested, setting deadlines, or announcing milestones. You should pause the negotiation when you need more information, more time, or more feedback, or when you encounter a deadlock or a conflict. You should end the negotiation when you have reached a mutually beneficial agreement, when you have exhausted your options, or when you have decided to walk away.