As our career progresses, we’re finding ourselves in the interesting position of carrying out multiple negotiations over time with the same investors.
Managing this effectively turns out to be very different from your standard one-off negotiation.
Why? Because you always need to be thinking about how that specific negotiation impacts the whole relationship.
When I negotiate, I’m frequently in a position of knowing more than the person with whom I’m negotiating. That’s because we’re generally discussing a project I found and on which I’ve already spent a ton of time.
I therefore know where the problems are, where I can make more money, what the risks are, etc. to a much more granular degree than the capital provider with whom I’m negotiating, whose expertise is generally far broader (encompassing many different types of investment) but shallower.
Obviously, having an informational advantage is useful… but you don’t actually want to exploit it. Why?
Because, if you do, and you end up with an “unfair” deal (even if it’s been negotiated), the capital provider is eventually going to figure out that the deal is unfair. And she is going to be much warier of doing business with you going forward.
So, I often find myself in the position of unilaterally disarming. In the midst of a negotiation, I explain the informational advantage and the implications, so that the capital provider can negotiate on a more level playing field.
This often results in a worse deal for us than the one we could have got. But I like to think it leads to healthier long term relationships… and I’m greedy, but I’m long-term greedy.