Securing Investors and Structuring the Deal 327
then, are more likely to engage in distributive bargaining to get what they perceive as
their fair share.
Timing. When the parties to a negotiation realize that time is getting short, they are
more likely to compromise. Bargaining is often characterized by eleventh-hour dramat-
ics. People worn down by long bargaining sessions are reluctant to start over and unwill-
ing to leave empty-handed. Most people are not professional negotiators and have other
things to do.
Evidence shows that time pressure precludes negotiating tactics like stalling and bluff-
ing, and it makes people more realistic. The demands of each side get softer as the dead-
line nears. Pressure to settle mounts, and concessions are less likely to be seen as signs
of weakness, thus saving the negotiator’s face with his or her constituents.
Tactically, time can be used to advantage by the shrewd negotiator.
- The shrewd negotiator waits for the deadline to make concessions.
- When a deadline puts the shrewd negotiator under too much pressure, he attempts
to renegotiate the deadline.
- If no deadline exists, the shrewd negotiator creates one for a reluctant opponent.
- The shrewd negotiator creates positive incentives for quick settlement if a deadline
is nearing.
- The shrewd negotiator avoids being trapped by a deadline and making costly con-
cessions. She knows her resistance points (her BATNA) and offers to extend the
deadline if possible.^38
SUMMARY
This chapter elaborated and expanded the ideas in Chapter 7. The entrepreneur must
understand the criteria that investors use to evaluate their decision to invest in the new
venture. Because different investors apply different criteria, the entrepreneur can seg-
ment the financing market and sell investment vehicles that match the risk/reward pref-
erences of the market.
Investors will use a seven-stage process in the investment cycle. They will search,
screen, and evaluate proposals. After evaluation, they will make the decision, negotiate
the details, structure the deal, and finally harvest the investment. The elements of the
deal structure (risks, rewards, and timing) provide important positive incentives for both
the investor and entrepreneur to make the new venture work. The types of investments
offered, the manner in which they spread risk and reward, and the use of phased financ-
ing and options all combine to make the deal structure one of the more interesting, and
potentially lucrative, aspects of entrepreneurship.
Last, we introduced the basic concepts of negotiations. Negotiating skill and capabil-
ity are an advantage for the entrepreneur. They enable the new venture to obtain
resources at below market prices and sell products and services above market prices. The
entrepreneur is always negotiating with both the environment and the stakeholders of
the new venture.
