How To Negotiate With An Investor To Move Quickly

13 April, 2012

I was speaking at a start-up event on Saturday when an entrepreneur came up after the event to talk to me about 'how slowly investors move.' He had been in discussions with three investors and although the time invested was about 40 hours, the elapsed time was close to four months. There was still no term sheet available. The investors had expressed an interest to participate but they were not ready to pull the trigger. In short, there's no pressing need for the investors to move quickly was what I learnt from my discussion with him. The solution is to create a sense of urgency.

In sales, we often call this creating a 'compelling event.' When doing deals with customers, most sales professionals realise that customers have both time and money on their hands. So, customers move quickly if there is a trigger event by when a decision needs to be made. Here are some examples of driving a compelling event in sales.

a) Expiration of certain discounts which will not apply beyond a certain date. This may include promotional offers or freebies, which will no longer be available after that date.

b) Resource non-availability to implement the solution by a certain date, since other customers may sign up early.

c) Competitive advantage for the customer by a certain date. They may be the first to procure the solution and hence, gain the benefits earlier than their competitors.

The same strategies work well with investors as well. Keep in mind that the key emotional motivators of investors are greed, fear and herd instinct. Use these to level the playing field and help move your deal faster.

Using greed: If your true valuation, as expressed by recent competitive deals, is X, offer a 10-15 per cent discount on X as your valuation if the deal gets done quickly. Savvy investors know the 'market value' of companies and if they see a potential 'steal', they will move quickly.

Using fear: Creating competition among investors (make sure you really have competition for the deal, else it backfires on you) usually works well for both higher valuations and for moving quickly.

Using herd mentality: This is mostly not in your control, but you can leverage this as well. If e-commerce deals are the flavour of the month, most investors want 'one of those' in their portfolio. The other way to leverage this is to let investors know who the others are who have committed and when the train leaves the station (i.e. when you are closing the round).

Finally, thanks to my investor friends Rajesh Rai and Anuradha Ramachandran for helping me refine these thoughts.


Leave Your Comment
Cisco Must Learn To Deal With Market Shifts

Cisco Must Learn To Deal With Market Shifts

Adam Hartung 1 year ago
. They cite a huge cash hoard (some 25 per cent of market cap) and Cisco's dominance in its historical 'core' product markets. They hope...
A $7.6B write-off plus layoffs is never a good sign, Microsoft

A $7.6B write-off plus layoffs is never a good sign, Microsoft

Adam Hartung 2 years ago
Microsoft announced today it was going to shut down the Nokia phone unit, take a $7.6B write-off (more than the $7.2B they paid for it,)...
SUPER-OPTIMIZE ME! - First Year Trials (And Travels) Of An Indian Micro-VC

SUPER-OPTIMIZE ME! – First Year Trials (And Travels) Of An Indian Micro-VC

Karthik Reddy 5 years ago
(Warning: "don't try this at home, stunts performed by passionate professionals and imitating them may lead to harmful side effects") There is a good reason...
No Comments

How To Negotiate With An Investor To Move Quickly

Powered by WordPress.com VIP