How to Successfully Negotiate With Investors

With capital especially tight right now, it’s a mission for entrepreneurs to get funding on good terms, or in some cases at all. Daniel Lipinski, entrepreneur and founder of growth funding platform Just Capital, shares his personal tips for success when it comes to negotiating with potential investors. 

Let me begin by saying that not all funding is created equal. During my time founding and raising capital for my own businesses, I’ve learned what it takes to negotiate with top level VCs, struggle with equity divisions and berate myself for a pitch not going well after days of prep. It’s these experiences that led me to found Just Capital.

So, you won’t need many of these tips to secure funding from us, but if you are looking to do an equity raise, you’ll definitely need strong nerves and razor-sharp skills.

Keep Your Eyes on the Goal

Amazingly, many companies treat raising capital as the goal. It’s not – it’s a means to an end.

While big equity raises are heralded as huge successes for many startups, they’re also the costliest way to get capital. In an ideal world, you’d be able to grow while giving the least amount away. So if you’re going to give up a chunk of your work, know exactly what you’re going to do with that money.

Will you hire engineers or ops staff, build the platform that transforms your business or expand internationally? You’ll feel the urge to overpromise, especially in the room, but it’s good to strike a balance between ambition and realism. You don’t want to promise a US launch in four months and then spend a year firefighting in your core market.

Amazingly, many companies treat raising capital as the goal. It’s not – it’s a means to an end.

“In God we trust; all others must bring data.”

Data is the buzzword in business and VCs are investing more in their back office and analysis capabilities.

Everyone claims to be data-driven. But it’s better to be data-savvy – knowing what you can prove, what you can’t and most importantly, what to leave out. Don’t just data dump, tell a story with key pieces.

Key external data points are your addressable market, its total size and value of who you can potentially sell to, and your competitors. Know these inside out because you will be asked!

Not sure of your most important metrics? Just ask yourself which data points would keep you awake if they halved, and pop the champagne if they doubled.

Go In With Trust

Negotiating with investors isn’t like negotiating a sale. Hopefully, you’re talking to people who’ll eventually become partners, so it’s not in anyone’s interest to cause upset. In a way, it’s similar to making a hire.

So treat your investors with trust and don’t hold back. Sell hard, but be frank about what’s wrong or needs work. They’ll find out most stuff in due diligence anyway.

Equally, if you go in with trust and feel like it’s not reciprocated, walk away. No amount of money is worth years of partnership with someone who doesn’t align with you.

Ask Questions

When launching a business, especially in the early stages, your instinct is to project absolute competence. You need to look legit, right? Wrong: one of the most confident moves is an entrepreneur admitting (partial) ignorance.

Make it clear to investors that you know your domain and your business back to front AND that you also know where you’re not an expert. And when it comes to the latter, you’re not afraid to ask questions.

For example, if you’re muddling through specifics of a potential deal, clarify them. Your job is to be incredible at growing your business, not to know exactly how to navigate a terms sheet.

Know Your Audience

Despite the pre-eminence of data, many investors base decisions on chemistry and affinity alone. So do a little research on who you’re talking to and build a sense of what drives them – what they care about, where they’ve invested before and what’s created their success.

If you can use that knowledge to sell them on the business AND the mission, that’s ideal. Use data to persuade and use your ingenuity and passion to inspire. Even the most wonkish VC partner has emotions and passions. For angels, this is even truer. And at the very least, knowing your investor loves craft beer can give you an edge on finding a good meeting spot.

Even the most wonkish VC partner has emotions and passions.

And finally…

Consider an Alternative

If you’re looking for money for direct growth drivers like ads and inventory, consider growth funding. At Just Capital we believe equity funding isn’t the only way, or even the best way, to scale a lot of businesses. If you want to raise funds fast with no negotiation, we’re ready and waiting.

But if you’re looking for an equity investor and are dreading the negotiation, keep these tips in mind and stay cool. Remember, ultimately a business can exist with investors, but an investor can’t exist without a business.