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The Basics of Negotiating with Investors

Zack Storms founded a non-profit called Startup TNT, a community that works not only to educate potential investors but to bridge the gap between investors and founders looking for funding.

TNT has created a safe space for founders to negotiate and navigate the challenging system without fear they’ll do something wrong. It’s about building a supportive community where you can learn and grow.

The process can be overwhelming when founders of companies are looking for seed funding. And when you don’t have connections in the industry, it’s hard to know where to start. That’s where Startup TNT comes in.

In episode #313 of Negotiations Ninja, Zack shared some things to keep in mind when it comes to negotiating with investors. His first tip? Do your research.

Make sure you research your business

Think of pricing your business as pricing a private asset. What would you price your house at when you put it up for sale? What are other people paying for comparable businesses? Is there anything unique or special about your business?

There are local market forces at play as well. You need to understand what the expectations are for a company at your stage, in your market, and in your region. What is an appropriate price that is correct? You have to do your homework and do a comparative analysis.

Many new founders feel like they should take whatever they’re offered because they have no leverage. But you get to suggest the first set of deal terms. When you put your house up for sale, you get to choose the beginning price based on your and your realtor’s research. It’s a similar process when it comes to raising funds. Then, you negotiate.

Early-stage venture capital groups

If you’re negotiating with an early-stage venture capital group, Zack points out that they’re professionals who have access to a lot of information. They’ll take the information available to them and negotiate a fair price if they’re a trustworthy and reputable firm.

The investors want to get in at a reasonable price (because the asset needs to increase over time to get their money back), but they also don’t want to over-dilute the founders. Conversely, you don’t want to give away too much equity in the early stages of your business. Investors want you to retain enough equity to remain motivated to see your business grow and succeed.

How do you approach a fundraising negotiation? How can Startup TNT help you get started? Learn more in episode #313 of Negotiations Ninja!