Recently, I’ve been involved in a series of negotiations and discussions with a number of young entrepreneurs in and around 1871 (and elsewhere throughout the country) about a variety of topics regarding their businesses. Some of these conversations have been about the nature, usage and pricing of their products, services and content; some have related to the strength of their existing and emerging competition and the need for additional strategic partnerships; and many have been discussions about cash (or the impending lack thereof) and the pressing need for new rounds of financing.
On the last topic - new money - it seems clear to me that way too many of these guys (and girls) are getting miles ahead of themselves (and the actual results and progress of their businesses) and feverishly talking about raising big chunks of venture capital at very healthy and stepped-up valuations when they should be thinking about grabbing more angel money, generating some real revenue from actual customers, and figuring out how to get their businesses to break-even before their bankroll disappears. They're just in too much of a hurry to get everything done; they're losing sight of the need to make real connections with investors before you try to hit them over the head with your proposals; and they're trying to have it all in a heartbeat which almost never happens. Part of this is just that even the best fundraising process still inevitably takes some time - just like pregnancy. Sadly, nine women still can't have a baby in one month and you can't push a rope or an investor beyond reason and expect any real results.
To make things worse, I keep hearing about more and more expensive and time-wasting pilgrimages to the West Coast where these same people are meeting and pitching a dozen or more different VC firms and basically getting their heads and their porkpie hipster hats handed to them at every meeting because they're wasting everyone's time and - even in the Valley - they expect a little more than just pipe dreams and wild ass projections that grow to the sky. As they used to say about the Internet, and now they say about investment dollars, "the money's there all right; it's just not evenly distributed."
The fact is that there is plenty of capital everywhere these days (no need to drag yourself across the country in either direction), but there's no more money available for half-cooked concepts or half-baked businesses than there ever was. Your story and your numbers (and your valuation which is presumably based on them) still all need to make sense or you're just kidding yourself. Passion and extreme self-confidence can fill in some of the more glaring gaps, but there aren't too many smart investors around who've suddenly been hit with the stupid stick. I understand as well as anyone the pressure to make payroll, but you've got to be a little prudent about the process.
So, as you might imagine, these aren't easy chats to have with fired-up (and also very nervous) entrepreneurs and a bunch of these conversations have gotten pretty heated and intense. All of that’s fine with me and pretty much business as usual and, frankly, it's even to be expected. I’m all for pushing the envelope, aggressive selling and persistence, but it helps some time to leaven the lectures and the “lessons” with at least a little patience and some perspective. In addition, a little listening to what people are consistently telling you doesn't hurt either. And just because someone else you heard about pulled a miracle off in record time with even less results than you have and found some whale of an investor almost overnight doesn't mean jack for your prospects.
But what I am really concerned about is that I'm seeing rampant examples of another epidemic of "egola" where the entrepreneurs are just so far out there with their demands and their expectations that they're becoming their own worst enemies. They're as bad as the Tea Party bozos and just as tone deaf and incapable of compromise or thinking about alternative paths, taking less money for the moment, cutting their burn rate so their runway extends, etc. And, not surprisingly, when your "asks" are off the charts and astronomical compared to other folk's (especially prospective investors') views of the real picture, it makes it ultra easy to say a quick "no" and send you on your way. And this is exactly what is happening right now to companies which are full of good ideas and good people, but too full of themselves to understand and keep in mind the three most basic rules of negotiating good deals.
The first is the ancient business prophecy and truism that: what comes around goes around. Hopefully, if you're good and smart; this won't be your last rodeo or the last time you'll be in front of these very same investors (all of whom talk to each other regularly about the deals they're seeing) and it's really important for you to play the long game - pushing too hard and burning your bridges when you get turned down or over-reacting in any way is simply stupid. And coming to see these guys too early with too little is also a reflection on your judgment and your credibility that it will be hard to walk back and rebuild if you take your shot too soon and you're not prepared for the hard questions with concrete facts and good answers.
The second hoary axiom is that the best deals are those where everyone leaves a little bit on the table. I call this a "nibble for next time" and it lets everyone feel like a winner who got some of the things (but not everything) that were important to them. Everyone also feels a little pain, but they can go back to their boss or their team with a few scalps on their belts to show how well they did. And, most importantly, they feel that the other players were reasonable and that there are opportunities down the line to talk and deal again. That little nibble you left is a modest investment in the deal next time.
The third rule is that - at the end of the day - in every business people care much more about how their deal was negotiated and completed than they do about every little detail or talking point or even the final outcome. If your attitude going in is mature and healthy, you've got a good shot at getting a solid deal that makes sense for all concerned. But if it's all about winning and "your way or the highway" and it's not even enough that you get your way unless the other guys give in or give up; your deal's in trouble from the get-go.
This is because not only is implementing any deal at least as challenging and tough as getting the deal done and documented in the first place; successful implementation and integration will be a hundred times harder if the guys sitting across the table from you can't stand the sight of your face because you were a pig or an asshole during the negotiations. You can't burn down the village and then expect to be welcome at the native's weekly pig roast unless you're the pig on the spit. No one needs that kind of welcome - it's a lot like inviting a turkey to be your guest at Thanksgiving dinner.
So the lesson is that sticking to your guns and asking for all that you're entitled to is fine, but there's always a hard-to-read line past which you'll have gone too far. The only thing likely to bring you back is the good will (and a little slack and forgiveness) that you've accumulated throughout the process and the fact that you acted like a mensch from the beginning.