There are many decisions to be made in early-stage deals, negotiating is one of them. Newer investors assume this stage will be a lengthy process, but that is not always the case. Factors such as personal style, participation in the process and terms of the deal ate determinants in how long the process can take for an investor. How investors think about negotiation is important because it impacts the terms, price and overall structure of the deal, but also because it it’s a prelude to the highly interdependent relationship formed between the investor and the entrepreneur (Amis & Stevenson, 2001).
The investors that decide not to participate they may get someone else to do it or simply pass on the offer. These investors that decide not to get involved are usually a result of the following reasons: they don’t have the time to invest, they are concerned about the efficiency of a relationship based on trust, or they don’t think the terms or price are that significant.
The investors that are willing to negotiate are more likely to have a more active role in the process. Each investor will approach the negotiating process differently. However, the negotiation process usually falls within three categories: negotiate directly and actively until the desired outcome is achieved, quickly offer final terms, or get someone else to negotiate . There are a few principles in negotiating that are helpful with the process: Start from a position of perceived real strength, represent significant capital, don’t delay, establish precedents, sell value-added, and no gouging. This helps structure the negotiation process which ensures that the four key areas will be covered successfully. These four areas include: the price, the structure of the deal, how much money they will invest, what role the investor will play (if any) (Amis & Stevenson, 2001).
Regardless of the route taken, the purpose of a negotiation is for both the entrepreneur and investor to be better off after the deal is made. The process should not be unpleasant and the focal point should not simply be about money. Similar to any other step in the early-stage deal making process, the deal must benefit everyone and overall lead to a healthier and stronger partnership.
References:
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.
Art is Life's Paintbrush 
One of the more interesting approaches is when investors negotiate by simply declining an offer with no feedback or counter. If the entrepreneur values the investor they will negotiate with themselves until they approach an agreeable term. It is a fascinating psychological tactic, but I imagine one’s reputation and value must be significant to execute it successfully.
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Hi Shay,
I think this was my favorite section of the book, as I found the study it featured to be quite fascinating. As you mentioned, what separates mediocre investors from winning angels is the tendency to prioritize forming mutually beneficial relationships. Which makes sense, as a successful outcome is quite unlikely if seeds of distrust and toxicity are planted during the negotiation period. For this reason, I favor the strategy of outsourcing the hands-on negotiating to a trusted intermediary, as it strikes me as a great way to shield the angel from any sort of tension that takes places while the details are being hammered out.
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