Many business owners concentrate solely on the company’s value when negotiating, but other contract provisions frequently have a much bigger impact. The issue is that early-stage founders frequently hesitate to hire attorneys due to the high costs associated with doing so, so they lack the legal expertise and experience necessary to negotiate the best terms. founders need to enter negotiations knowing the legal dynamics when dealing with corporate venture capital (CVC), where businesses have skilled, specialized legal teams. This will enable them to be more inventive in their requests and implement agreements that are more advantageous to both parties.
This is my advice for dealing with CVC based on my legal knowledge as the head of Telefónica’s investment company Wayra X and discussions with the founders at the negotiating table.
CVCS ALSO COMPREHENDS STARTUP NEGOTIATIONS
When negotiating with CVCs, it might seem like you’re up against Goliath, but their size and level of legal expertise don’t automatically give them the upper hand. Although CVCs are more accustomed to drafting high-level contracts and M&A agreements, they should be able to adapt their way of thinking when working with startups.
That entails having the ability to work effectively with a smaller team, writing contracts in simple terms, and outlining requirements in detail before anything is signed.
Additionally, CVCs shouldn’t operate outside of accepted procedures because of their size, which prevents them from doing so in the broader investment community. Therefore, founders can call them out if they present terms that seem out of place in a conventional investor contract. You can also decline if a CVC tries to tie the investment to a business deal, especially if there might be a conflict of interest.
Bring these 3 suggestions to the negotiation table
Although there are a variety of methods you can use to negotiate, we advise using the three steps of a mutual-gains approach instead:
1) Define and enumerate interests
Identifying you’re and the other side’s interests on the various issues under negotiation should take up some of your conversations. Consider writing down your interests on flip charts, a whiteboard, or a public computer. Parties should refrain from passing judgment on what the other side says during this phase. Instead, concentrate on asking clarifying questions to make sure you comprehend each other’s interests completely.’
2) Make a list of potential value-adding opportunities
It’s time to come up with a variety of options based on your interests once you’ve created a complete list of them. Setting ground rules is crucial for brainstorming to be successful. For Instance, parties should agree to record all ideas without criticism or evaluation to increase creativity and reduce self-censorship.
3) Examine your options
To select from the ideas generated during the brainstorming session, the parties should first agree on a set of norms, standards, or criteria. Such criteria will assist you in evaluating potential deals that could produce effective results that maximize value for all parties.
A mutual gains strategy at the negotiating table can help you come to a negotiated agreement with a challenging counterpart as well as find ways to add value and widen the resource distribution pie. To accomplish this, you must build a relationship with your counterpart and use it to identify areas of potential agreement (ZOPA). A skilled negotiator can create a deal that most closely resembles her own and her counterpart’s needs while establishing a rapport with her counterpart if they are aware of the points of agreement on which they and their counterpart agree (and those points on which they disagree).
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