Early Stage Investors, Getting Deals Done

This post is a response to Matt Maroon's post today called Poker People. Matt talks about how straightforward poker players are with each other as compared to Silicon Valley investors.

I've been listening to this song by Kanye West called Last Call. It has a nine minute outro where he tells the whole story about how his career took off. It's worth a listen / read the lyrics. (We can mix things up a bit, right?)

Kanye went through a lot of struggling and many of his deals fell through. It sounds like the rapping industry, like early stage investing, is not as straightforward as the poker world. Just interesting as another data point.

Early stage investors are definitely in a hostile environment. The signal to noise ratio is remarkably low. I was speaking with a VC the other day who said he reviewed 1000 business plans in the last year. Imagine that!

It's no wonder that investors take their time. That said, I do agree with you that negotiations are often fumbled. I've never met Ram Shiram, but he seems like an upstanding guy:

"Unlike most investors (who wait a week, talk to their friends, bring you back for multiple meetings), Ram said 'Okay, I'm in' before I was done with the presentation."

- The Mint guys

That said, Ram had the advantage that he was coming after another round was recently closed, so Mint already had social proof.

Paul Graham, as you know, is also upstanding. Don't know about Sequoia, though I'd expect them to also be straightforward. Same story with Fred Wilson; I haven't convinced him to invest in me yet but he seems like a genuine and straightforward human.

I've also been reading and listening to lots of Warren Buffet, and he also seems to think heavy negotiation doesn't matter. He invests in companies for a lifetime, so he understands that business fundamentals are more important.

I don't know effective strategies for getting investors to be straight up with you. Probably

(a) having a reputation / not a first time entrepreneur / being a known quantity that they'll have to contend with in ten years,

(b) being likewise straightforward with them, and letting them know that you don't want to negotiate heavily, e.g. offer terms that you think are fair and indicate that you think they're fair and you don't expect to end up with something substantially different, and

(c) picking a lead investor who's a minimalist when it comes to negotiation and letting others invest on pre-negotiated terms.

Good luck!

Comments

[prakash s]

The best strategy is that, you believe that you have the power to walk away. If a certain investor will not invest, look for another investor.

A good book on negotiation is Richard Shell's "Bargain for Advantage". It's a totally logical way to approach negotiations and, hence, I guess, it resonates with hackers :-)

If you like, Buffet, read some of Charlie Munger's essays. If you want to read all of his essays buy his book "Poor Charlie's Almanac" -- worth every penny.

[Matt Kaufman]

I didn't hear this before/yet, but I always thought his lyrics sounded very entrepreneurial and deeply rooted seeds of ambition