Question & Answer

I’ve always held the belief that in any deal, there are two main components you can negotiate: price and terms. Given the choice, I would always let my counterpart dictate the price, provided I can set the terms.

So what do I mean by that?

Imagine you are a founder seeking my investment in your startup. You’re asking for 1 million USD at a 10 million USD valuation. I might consider both your ask and valuation to be too high. However, adhering to my principle of negotiating terms rather than price, I would agree to your price if I could set the terms. Here’s how that might look, with a few examples that can either be combined or used independently:

• Option to Buy More Shares: You will get your 1 million at a 10 million valuation if I have the option to buy more of the company at a fixed price, preferably near the 10 million valuation, in the future. This is particularly appealing if there is a real chance that the company’s valuation will skyrocket.
  
• Sell-Back Clause: You will get your 1 million at a 10 million valuation if I have a sell-back clause allowing me to sell back my shares and get my money back if the company does not meet its projected budgets.
  
• Debt Provision: You will get your 1 million at a 10 million valuation if part of the investment can be provided as debt instead of equity (while I retain the same shares). This offers a clearer path to recouping my investment.
  
• Turnover-Based Payment: You will get your 1 million at a 10 million valuation if I can receive 0.1% of the company’s turnover monthly. This turns my cash-for-equity investment into a cash flow generating investment. For instance, if the company turns over 100 million USD annually, I would receive 100,000 USD each year. After 10 years (assuming the company maintains a steady 100 million turnover), my investment would be derisked.

These examples illustrate how I’d be willing to pay the price if the terms are attractive enough.

When negotiating, knowing what “extras” to introduce can significantly enhance your negotiating skills and help achieve a favourable outcome for both you and your counterpart. This has significantly improved my business negotiation skills.

While these examples are very much in the context of investing in a company, with a bit of creativity, similar variations or other terms can be applied to different types of deals you might be negotiating.