Negotiation Tips When Fundraising

Negotiation Tips When Fundraising

Fundraising is one of the most important parts of running a startup, and how well you negotiate can make a huge difference. Sometimes, it may feel like you need cash urgently, but taking money from the wrong investors or on poor terms can make it harder to run your company or raise future funds. It might even take away what you originally loved about your business.

Here are some tips to help you negotiate better and secure the best terms for this round of funding, while also setting your startup up for long-term success.

Don’t Take the First Offer

Don’t reject much-needed capital just to negotiate, especially if you’re in a tough spot. But if you have multiple offers, try holding off for a better one. If investors are reaching out to you, it’s a sign that you have value, and you might be able to get a better deal just by waiting.

Shop Around

When you start looking for funding, don’t settle for the first offer. Get multiple offers and compare them. Once you have a lead investor, you can use that to get better terms from others.

Think Beyond the Money

Valuation and cash are important, but the terms of the deal can have a bigger impact on how you run your company. These terms can affect your future fundraising and control over the business. Think about who you want as an investor and choose someone who will support you, not just provide money. Look for added value, like access to teams, technology, or networks that can help you grow.

Negotiation Is a Learned Skill

Like public speaking or pitching, negotiation is something you can learn and improve over time. You don’t need an expensive course—just practice and read up on it. You can also hire lawyers, investment bankers, or advisors to help you with the negotiations.

Everything Is Negotiable

During fundraising, you might hear that certain terms are “standard.” While it’s important to know when not to push back too hard, almost everything can be negotiated. If certain terms don’t work for you, see if you can negotiate changes. Having an experienced advisor can help with this.

You Won’t Get a Break If You Don’t Ask

If you don’t ask for better terms, you won’t get them. The worst that can happen is the investor says “no.” Just be careful not to be too difficult, or investors might turn to fund your competition instead.

Negotiation Trends Change Over Time

Negotiation strategies change, so make sure the advice you follow is up-to-date. A hard-nosed approach that worked years ago may no longer be effective today.

The Right Style Depends on Who You’re Negotiating With

Different people respond to different negotiation styles. Some might prefer a tough approach, while others respond better to a friendly one. Consider how you communicate too—some investors might prefer email, while others may prefer phone calls or in-person meetings.

Do Your Homework

Know the investors you’re negotiating with. Research the firm, the individual partners, and decision-makers. Understand what motivates them, their preferences, and any challenges they face. This knowledge will help you negotiate more effectively.

Know Your Top Three Priorities

Before starting any negotiation, know your top three priorities. For example, you might want to:

1. Raise a minimum of $2M.

2. Keep at least 51% ownership of your company.

3. Close the deal within 30 days.

Start High, Know Your Limits

It’s easier to negotiate down from a high starting point than the other way around. Know your limits and be willing to compromise where needed, but stand firm on your key priorities.

Everyone Wants to Feel Like They’ve Won

Even if you’re offering a great deal, investors want to feel like they’ve gained something from the negotiation. Start with tougher terms, so you have room to “give in” and let them feel like they’ve won something.

Offer Multiple Options

Give investors multiple choices, like different financing options (equity investment, debt financing, or a convertible note). This lets them feel like they’re in control while you guide them to your preferred outcome.

Don’t Get Attached to the Outcome

Be prepared to walk away if the deal isn’t right. If you’re not willing to do this, you’ll lose leverage and have to accept whatever is offered, no matter how bad the terms are.

Have Backup Plans

Even if you prefer a specific investor, always have backup options. This could include other investors, bootstrapping, loans, or even a merger. Having alternatives gives you more confidence in negotiations.

Subconscious Positioning

Your pitch deck and presentation should set the stage for the terms you want. Sometimes, investors see more potential in your startup than you do, and you can guide them toward more favorable terms without directly asking.

Listen More Than You Talk

In any negotiation, listen twice as much as you speak. Investors will often tell you exactly what they’re looking for. By listening carefully, you can position your startup in a way that aligns with their interests.

Ask More Questions

If the investor isn’t giving you much information, ask open-ended questions to get them talking. This helps you understand their needs and motivations, which you can use to your advantage.

Use Limited-Time Offers

Create a sense of urgency by offering limited-time deals or deadlines for preferred terms. This encourages investors to act quickly. You can always extend the deadline if needed.

The Deal Is Won Before Negotiations Start

Like Sun Tzu said, battles are won before they begin. In fundraising, this means doing your research, strategically positioning your startup, and building strong relationships with investors ahead of time. If you do this, negotiating favorable terms becomes much easier.

Summary

Negotiation is a big part of the fundraising process. These tips will help you navigate the process more smoothly, giving you the power to secure better terms and make your negotiations more successful.