We had an historic moment at our event: our first male guest speaker. Christoph Hauser, professor and head of the competence center management and law at the Lucerne University of Applied Sciences and Arts, gave the participants an insight into the topic “negotiating with investors”. The focus was on how to prepare for a negotiation, which important points have to be considered during the negotiation and how a negotiation is structured.
But first, of course, we wanted to know how a professor at the Lucerne University of Applied Sciences and Arts came across the topic of negotiation?
Christoph Hauser studied economics in Fribourg and subsequently completed his diploma as a commercial teacher. During this training, he became aware of the topic of mediation and negotiation and developed an interest for it. He had the feeling that economics could say a lot about negotiations: What are negotiations anyway and how do they work? For this reason, Christoph Hauser decided to write his dissertation on the topic “Economics of mediation”. This dissertation led him to SECO, where he had the opportunity to participate in and learn about international negotiations as a negotiator at the WTO Geneva.
With the Smart-up x female founders luncheons, we would like to primarily address female founders and ladies interested in founding a company, which is why we were particularly interested in Christoph Hauser’s opinion on the cliché that “women are less good or less likely to negotiate”.
Christoph Hauser gave us the following answer: “How well we master a negotiation depends on one’s personality, character traits as well as one’s own experiences. Whether you achieve a good or a bad result in a negotiation is therefore not dependent on gender.”
With this, we would like to encourage you ladies. Because this statement proves that you are not disadvantaged on this level!
Now, let’s get into the actual focus topic of the luncheon, negotiation. Before you start with the actual negotiation, there is a first, important point that you have to consider: the preparation. We asked Christoph about this and wanted to know which things you should pay attention to:
1. Firstly, you should be aware that it is essential to prepare for a negotiation with an investor and that you should not underestimate it. By being prepared, you will be able to get the most out of the negotiation.
2. Think about where you are in the negotiation right now. Is this your first negotiation with the investor or have you been in talks with her / him for a long time? Whether the whole investor market is still open to you or whether you have already committed to an investor makes a big difference.
3. Analyze what alternatives are available. Be aware that the negotiation can go badly and you have to keep the 2nd or 3rd option open to fall back on an alternative. Having options gives you more bargaining power.
4. Know your goal of the negotiation. Specific enough so that you get where you want to go and flexible enough so that you can move well during the negotiation or still have room to maneuver. Setting a clear goal allows you to have time for the negotiation, to feel confident and have a winning mindset. This sets the stage to be able to handle the feedback you receive from the investors.
5. Win-win (fruit-meat / peel principle): Consider which dimensions (e.g. deadlines, shareholdings) are less important for you, but more important for the investor, and accommodate the investor in the dimensions that are less important for you. And above all, consider which dimensions exist at all.
6. Define your minimum for the dimensions mentioned in point 5. E.g.: If the investor does not value my company at CHF 120,000, I will leave the negotiation. This will help you to steer the negotiation even more in your direction. But the minimum is not your goal. Therefore, also consider: What would make me happy now? With what evaluation would I say, “Hey, isn’t that cool?” Adjust to this afterwards.
7. Think about where your counterpart’s interests lie and imagine these interests. This will allow you to align the negotiation items with it.
And in general: Your counterpart wants to see that you have done your homework and have engaged with her / him. Use the negotiation to ask the investor specific questions to show interest and find out who you are dealing with.
Perfect! Now you know how to best prepare for a negotiation. The day of the negotiation has come, what do you need to keep in mind now?
👩💼The mental attitude on the day of the negotiation must not be neglected under any circumstances. Preparation already relieves some nervousness (you know what you want and under what circumstances you will leave the negotiation). However, it is even more important that you visualize the sense of achievement before the negotiation, or imagine how you and the investors will be happy about the result of the negotiation. So on the day of the negotiation, emphasize the positive, in the sense of, “Today could be a big step forward!” Because of the unconscious communication during the negotiation, the inner attitude plays a very important role.
👩💻Research on “Male and female entrepreneurs get asked different questions by VCs: and it affects how much funding they get” by Dana Kanze has shown that men get asked promotion-oriented questions such as “How do you bring in more money?” Women, on the other hand, get asked prevention questions like “How do you not lose my money?”. How can you counteract this frame?
- Be aware that a good negotiation is not always cooperative. In negotiations you fluctuate between confrontation and cooperation. As founders, you must endure this interaction.
- Try to set the framework of the negotiation early on by bringing in numbers that prove that your company is ready to go out and find investors and that you will make profit in the next few years. This will help you to actively steer the negotiation from the beginning and counteract the prejudices.
- Ignore negatively framed questions and answer profit-oriented. For example, you can name a competitor who has performed well in the first few years of business.
🧐 Confrontation during the negotiation. How should you handle it?
Be patient and accept that your figures and the figures of the investor are still far apart at the beginning. It’s important that you bring this patience to the fore by insisting on your point of view (appropriately) and that you communicate to the investor, when a number is far from what you envisioned. Differences are part of a negotiation. So don’t meet your counterpart too early, this disappoints his expectation that you still have to work on differences during the negotiation.
To give you a deeper insight into the topic of negotiation, we now enter the phases of a negotiation:
Phase 1: “Negotiating about the negotiation” and thus setting the framework:
- Where does the negotiation take place?
- When will the negotiation take place?
- How long will the negotiation last?
Phase 2: “What to negotiate about and what not to negotiate about” and thus set the agenda.
Phase 3: “What is there and what is asked?”:
This phase is about presenting your company’s pitch deck and thereby showing the investor what is there. The next step is to find out what the investor is looking for and to identify the differences.
Phase 4: “The agreement”:
In this phase, nails are fixed and an agreement is reached that is legally binding. This should and can be quite a bit of work. But of course it is worth it.
A good option is also to build in breaks during the various phases, where you can withdraw and reflect on what has happened.
In conclusion, Christoph would like to recommend the following two things to you:
#1: Be aware that the negotiation is a learning process that you and the investor are going through together. Approach it with determination, but rather too slowly than too quickly. The investor must first learn why your business plan is so good!
#2: Don’t be afraid of negotiating! Study the subject and look at the negotiation process in advance. This will allow you to increase your curiosity and go into the conversation excited and eager to learn. This will promote the success of the conversation.