Occassionally, as I hear people talk about negotiating a venture capital transaction or an M&A deal, I hear bravado about taking it to the other side. I also see these deals fall apart.
The intended outcome of most of the transactions I have been involved in is rather more like courtship and marriage than they were like buying or selling a used car.
While I don't think there is ever much of a need to negotiate even the purchase of a used car in hostile terms, I do acknowledge that it is somewhat harder to see why the buyer of a used car should be concerned about the welfare of the seller. Negotiating hard for the best possible deal on a car for some may involve a range of tactics that include putting your own needs well ahead of the needs of the dealer.
More to the point, when negotiating a M&A deal or a venture capital placement, I believe that those are typically intended to be long-term relationships, with almost all of the significance of a marriage. Can you imagine negotiating the terms of a marriage the way you would negotiate the purchase of a used car? I've seen it happen.
Let me suggest that the approach to negotiating a term sheet should include a couple of dates, a nice dinner out or at least a long lunch or two. A couple of long romantic walks through the warehouse, the plant or the office will help. You may also want to watch some PowerPoint together in a dimly lit conference room.
While you're spending time together leading up to formal negotiations, it makes sense to think about whether or not you'd like to spend time with the people in the room. If you are successful in completing a transaction, it is likely you will be!Specifically, let's consider a venture capital transaction. If you take a few million bucks from someone, you better hope that you have a shared vision for how things should run. You'll want to be sure you understand how the VC likes to see board meetings run, how often she talks to her CEOs, whether you enjoy each other's company and how long you'd expect to be partners.
In a strategic M&A deal, the marriage is anticipated to be permanent. Most strategic buyers I've worked with are hoping not only to acquire the business but also to hire the management. This is true of private equity deals, with the caveat that like venture firms, private equity firms are typically focused on creating windows for exits. In any case, relationships are key and should be built on a foundation of mutual trust that allows them to succeed in the long run.
Given the nature of a strategic deal, with a months long courtship followed by an engagement period during which a prenuptial agreement is negotiated while formal due diligence is completed prior to a ceremonial closing in which the parties are for all intents and purposes married, I think it makes sense to approach this like you would a marriage.
As you courted, you put your best foot forward, but you also recognized the need to be yourself. As you spent time together, you asked probing questions about your partner's hopes and dreams. You didn't call your partner an idiot--not even behind his back. At some point, you probably got a peak in the underwear drawer. When it came time to really negotiate deal terms, you sought an outcome that would work for both of you. It wasn't about beating him in the negotiation, it was about building a plan for the future.
In this context, you may have agreed to work full time while a spouse completed education. Perhaps you agreed to quit a job you love to move to a new town for your spouse's new job or graduate school. You may even have been willing to carry children in your womb for the success of the venture. You sought outcomes that were best for the team, that maximized the value of the strategic combination.
The same approach works well in negotiating a deal. Try it!
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