The COVID-19 Survival Guide Part 3: Negotiating Virtually for Success

A Startup’s most important asset are its founders and over the coming weeks and months, as the challenges of the COVID-19 pandemic unfold, this is likely to be proven over-and-over again. A key part of this will be the negotiating they do on behalf of their startup; from raising funds, to loan repayment rates, to supplier bills to sales. Knowing what it is possible to negotiate for, as well as how to negotiate effectively, will be vital. There has been a lot of talk about how we all need to come together and this should be at the forefront of every negotiation. The era of aggressive negotiation framed in a ‘winners and losers’ mindset is rightfully being relegated to the past.  

As Devon Smiley, Imperial Enterprise Lab Negotiator-in-Residence aptly puts it ‘Negotiation is all about value, agreement and relationships. Haggling is all about getting a deal, winning and transactions.... trust me, when it comes to how you do business, you’ll get much farther as a good negotiator, than as a great haggler.’ 

We spoke to our networks (Imperial College London colleagues, Experts-in-Residence and IVMS mentors) and scoured the internet for the best thought pieces and here are their top tips on how to negotiate, what you can negotiate for, and what some of the terms might be... 

‘Get lean’ 

If you aren’t running lean already then it is well past time you started doing so. In Part 1 of our Survival Guide, IVMS Director and serial entrepreneur Paul Atherton advised ‘Cut fast, cut hard, be ruthless.’ and he wasn’t being hyperbolic. ‘I’ve never met an entrepreneur who felt they cut too far. If anything, after every financial crisis, I hear stories of wishing they had cut earlier and further.’ He has been through at least five such crises, which is why I’m repeating the point here.  

You have probably noticed your banks getting in touch, offering mortgage holidays, loan holidays, overdraft interest holidays etc., often without even having to talk to them. Why? Because they know that keeping a roof over your head and keeping your livelihood afloat is what will keep money coming their way.  

 Make a list of EVERYTHING you need leeway with 

Bearing in mind the above, it can be tempting to focus on the largest, regular expenses, but you need to take a holistic view of all expenses and make a list of everything that has a financial implication, big or small, regular or one-off. Just as we advised you not to make any assumptions about customer discovery in Part 2, don’t make any assumptions about where you might be able to get a reduced rate, an extension or even funding. 

Paul Atherton tells a story in a cracking interview with London Business School Professor Luisa Alemany about a time when a company he ran was hit by a crisis and determined the only way to survive was by contracting from five floors to one floor on their 20-year lease. They had a candid conversation with the Finance Director of the company who held the lease: they could pay for one floor, or go bankrupt. Sensibly, the deal was accepted and the leaseholders found tenants for the other floors. You can read the article and watch the full interview here and hopefully it will make you re-evaluate what might be possible in a negotiation. 

Poh-Leng Devare, Imperial Enterprise Legal Expert-in-Residence, advises founders to check their delivery expectations, ‘Are they due to deliver anything / meet milestones according to a legally binding specification? Is this still feasible? If not, get in touch with the funder to re-negotiate outputs. It's worth looking at the contract to see if there's a force majeure clause that allows for a breather where performance is hindered or prevented by external factors -- usually floods / strikes / earthquakes. Check if pandemics are covered. Be aware of financial implications of not providing the deliverable. Is there enough cash flow?’

Don't be shy or hold back. Yes, you need to be reasonable in your asks, but as Imperial College Business School Senior Teaching Fellow Harveen Chugh points out, ‘If you don’t ask you don’t get, and you will always be wondering, what if? The worst that can happen is that someone says no. But they could say yes or make a counter-offer.’ A bold ask, framed correctly, can produce great returns. 

'DO NOT SIGN TERM SHEETS WITHOUT TAKING ADVICE’ (Yes, I’m SHOUTING!) 

The current crisis means we can expect many investors to focus on their current portfolios, but Brent Hoberman’s article Entrepreneurial responses to COVID-19 is packed full of useful content, ending with the COVID-19 European Investor Status list of VCs who are continuing to invest in startups during the crisis. Amy Lewin, Deputy Editor of Sifted (if you don’t subscribe to their newsletter, probably time you did) brought together three VCs to find out what is really going on, more here.  

It remains to be seen if this optimism continues and how many term sheets are signed over the coming months, but in the meantime, Rune Bentien, Imperial Enterprise Lab Commercialisation Expert-in-Residence, expects ‘to see valuations, in the US at least, being reduced by 50% in the coming months - some sectors such as edtech and teleconferencing will not be hit as hard.’ 

Deepali Nangia, IVMS Mentor, advises ‘If I had to guestimate, it will take you probably twice as long as to fundraise now, than pre-COVID-19 days. Please look at your own numbers and while hard to do, try and estimate the impact of COVID-19 on your projections and include a slide on this in your pitch decks.’ For more key insights please do read her article Cash and Community in the Time of Covid. 

Brijesh Roy, Imperial College London’s Seed Investment Manager agrees, ‘Anyone writing a term sheet today will do so at today’s prices, which are likely to be priced 30-50% lower than would have been offered two months ago. My key advice to startups is DO NOT SIGN TERM SHEETS WITHOUT TAKING ADVICE. Any Imperial founder with a term sheet can contact either me or the Enterprise Lab for objective, free guidance on the implications of the term sheet from people who have seen / written / negotiated / signed hundreds of term sheets and know how each clause will play out.’  

We also thoroughly recommend the Founder’s Pocket Guide to Term Sheets to get you started. It is concise, comprehensive and clear. Bonus: there are seven other linked books covering everything from Angel investing to convertible notes. 

‘Prepare! Failing to prepare is preparing to fail!’ 

Negotiating isn’t something that you are inherently good or bad at. It takes practice and focus. As Natalie Reynolds points out in her excellent book We Have a Deal even the best negotiators will get poor results when they don’t take due care. I highly recommend the book, it is delightfully practical, clearly explained and discusses a wide range of negotiation techniques. It transformed my ability to negotiate.  

 If learning via video tutorial is more your thing, you can purchase Natalie’s excellent Make Your Ask course for ￡10 (plus tax). Bonus: for every course that is purchased they will gift a course to a woman across the globe via one of their charity partners.  

A lot of negotiations are now taking place over video conferencing, so think about how you present yourself. I’ve seen for myself and had plenty of feedback that even during critical meetings, or pitching opportunities, some founders are being casual and informal, rather than focused and impressive.  

Devon Smiley provides some great advice here about how to make sure you present well and I would add:   

• Make sure you have set up whatever app you are using in advance of the meeting to minimise tech delays. 
• Make sure you are on time. 
• If there are multiple people from your startup in the meeting coordinate amongst yourselves to ensure that you don't end up speaking over each other. 
• Ensure you are wearing correct attire. Whatever you would be wearing for an in-person meeting. 
• Make sure you have a neutral-ish/professional looking background behind you.

‘Make the most of what you have! There are some real opportunities around IP even in this climate’ 

éamon Chawke, Imperial Enterprise Lab Intellectual Property Expert-in-Residence, writes eloquently about how to make certain you are ensuring that you add value without spending, and how to judiciously spend what you have to protect long term value.  To give one example, ‘copyright and design rights arise automatically (for free!) and protect a broad spectrum of creative works and products that add substantial long-term value to a business.... businesses should ensure that they have contracts (with appropriate IP assignment clauses) in place with anyone who creates content and other materials for the business, particularly if they are freelancers as opposed to employees.’ 

And when you are spending money, make sure it counts. Eamon points out that many business spend time and money gaining brand recognition without registering a trademark. This is a risk as they can 'find out later that they are somehow prevented from using their chosen brand name or logo... this scenario can devastate a small business.... In the UK, if you register a trademark yourself, you could spend as little as ￡200. If you register it with the help of a professional advisor, you could spend as little as ￡500. Either way, you have invested in your business and secured crucial and lasting protection for your business (once granted, trademarks last forever provided that they are used and renewed every 10 years).’ he points out that now is a good time to do this as 'potential opponents/competitors who might otherwise have opposed your application may be less inclined to do so in the current climate.‘  

Iain Russell, Imperial Enterprise Lab Intellectual Property Expert-in-Residence advises ‘Some deadlines can easily be extended at a low or small cost.... Some IP offices are automatically extending deadlines given the current situation, but not all offices are. Check with your IP attorney if there’s any uncertainty.’ 

Jack Severs, Imperial Enterprise Lab Intellectual Property Expert-in-Residence advises, ‘The Intellectual Property Office provides funding for early stage companies specifically to allow the company to carry out an IP audit with an IP professional to help identify and protect their IP.’  

What’s next? 

We haven’t quite figured out how many parts there will be to this survival guide, more input from our amazing community is pouring in, and we keep on seeing fantastic articles and resources we feel it is important to share. But my colleague Jennifer Mills is putting together Part 4 all about communication which will be out next week. See you soon! 

EDIT: The COVID-19 Startup Survival Guide Part 4 – Communication is key is now available ??

What came before?

• The COVID-19 Startup Survival Guide Part 1 
• The COVID-19 Startup Survival Guide Part 2: Customer Discovery During Lockdown