Preparing for negotiations with investors

Business needs money: for start, formation, development. If a business has at least a year or two of successful experience, it can very well count on various loan programs. Beginners, in order to attract capital, have to look for investors. Negotiation coach of the PROFI Space business school, founder of the Profi_ Negotiators Club Yekaterina Lastenko advises how to prepare for negotiations with investors.

Negotiations are the communication of two parties, where each has its own global interests, short-term goals, current positions and values. In preparing for them, you need to determine your own interests and find out what the investor needs. After that, find the points of intersection of interests and eliminate the contradictions.
When developing a negotiation plan, I recommend compiling a table of two columns, in one - write down information about yourself, in the other - about the future partner. It is easier to analyze, draw conclusions and formulate arguments for further communication.
Preparation for a conversation with an investor can be divided into 5 blocks. “Me and my interests”, “Investor and his interests”, “Strategy”, “Presentation” and “Counter-argumentation”.

BLOCK 1. ME AND MY INTERESTS

First of all, detail your plans and needs, then study the investor. Answer the following questions:

• Why do my projects need investments?
• What global goal of my business should they work for?
• Can I really not develop a business without attracting investment?
• Will the bank really refuse to lend me?
• How much investment is needed and in what time frame?
• What will I spend the funds raised on?
• When will I return the investment and on what conditions?
• What ownership and management rights will my investor have?
• How will I act if I do not find an investment?

Often, at the first stage, everything stops, because the entrepreneur either starts looking for internal resources to implement his plans, or after talking with the bank manager receives an amount of funds that will at least partially satisfy the needs. But if, after answering a question, you understand that external investment is extremely necessary for your business, go to the next block of questions.

BLOCK 2. INVESTOR AND ITS INTERESTS

Explore the investor market yourself or hire professional advisors. Remember, not everyone who is willing to invest their money is right for you. They are divided by specialization, limit of funds, investment systems, investment geography. Some work only with high-tech, others with real estate or agro and the like. There are companies that are only interested in a business that can be scaled outside of Ukraine.

After exploring the investment opportunities of the market, answer the question what type of investors would you like to work with. Among investment funds, banks and private investors, select those who are suitable for you according to the goals and form of cooperation. If you are planning a long-term cooperation, you should also correlate your values with the values of your future partner.

After identifying the pool of potential investors, diagnose their expectations. Typically, investment funds declare their selection criteria for projects openly or upon request. Keep in mind: in addition to direct interest - making a profit from a business or subsequently selling a share of your company - investors may also have indirect interests. In particular, the development of new markets and direct access to your expertise and relationships, strengthening your brand and the like.

Analyze the portfolio of investor projects that interest you, collect a dossier on them. Add the analysis result to your file. This will allow you to see common interests, which are the basis for the formulation of common goals. The rest is the subject of discussion and bidding. In the process of studying your opponent, you may find conflicting points. This is absolutely normal, get ready to work out this conflict zone.

BLOCK 3. STRATEGY

Here the ideas of your collaboration begin to take shape. The main question of this block: how will you be useful to each other? Begin, as before, with yourself. The goal of writing a strategy is to create a simple and understandable plan that can be set out on one A4 sheet and in 5 minutes to bring it to a future partner who knows nothing about your project. The key here is the business model and numbers. In addition to a brief summary, you should have a detailed justification: a business plan with financial performance indicators and payback periods, company presentation, possibly product prototypes, etc. Describe in detail the global program for 3-4 years. Many investors profit not from the business itself, but from its sale, therefore they want to understand what your ideas are for the long term. You should go into negotiations with your investment plan and the scheme of your interaction with the vis-a-vis. Are you suggesting a partnership, ready to share a stake in the business, or request financial assistance on certain conditions? Focus on the win-win negotiation strategy, both parties should benefit from the investment project.

BLOCK 4. PRESENTATION

The key point in negotiations with the investor is that first of all he will buy you, and then your project. No matter how cool the idea may be, but if its creator is little motivated and his team is not professional enough, there will be no business. Experienced businessmen know that the power of any project is in people. Therefore, prepare a competent presentation of yourself and your team. Be sure to add emotional arguments, tell us about the company's mission, justify the relevance of the project to the target audience, indicate the intention to develop professionally and personally. Also prepare visual materials: diagrams, portfolios, videos. Hone the short version of the presentation “while the match is burning”. This will help you a lot when you meet your potential investor at an event or, for example, in the elevator of a business center.

BLOCK 5. CONTRARGUMENTATION

Your opponent will come to negotiations with his vision of the situation and options for cooperation. No matter how things go, avoid sudden movements: do not say categorically “no” if you don’t agree with the partner’s first position, and don’t take the money right away, even if the amount is very tempting. Understand which issues are fundamental for him and which are debatable. Discuss under what conditions you will receive investments and what new obligations you undertake. It is also very important to understand whether the investor is ready to fulfill his functions and what guarantees you are operating in this regard. Negotiating with investors is a multi-step process. First you get to know each other, understand the primary usefulness of each other, then proceed to study the business plan, begin to negotiate, draw up a contract, share the risks and responsibilities. Also remember: in negotiations, both parties can control the process and influence it. After all, the investor needs you as much as he needs you.