A popular metaphor people tend to use when describing the process of negotiating investments is that of courtship – and there is a kind of wooing involved. So far you’ve flirted, you’ve gone on a couple of dates, there seems to be chemistry there and both sides are ready to take things to the next level.
But this is courtship in the old-fashioned sense of the word, meaning you’re not just going to run off to Vegas with the girl (that’s the money in this scenario). You’re going to sit down with the family (the investors) and hammer out a careful marriage contract so they can sleep soundly at night knowing that their money is being well taken care of.
Just like at every other stage of the pitching process, there are “dos” and “don’ts” when it comes to closing the deal with investors. In this chapter, we’ll look at some of both: the ways you can set yourself up for success, and the ways you can doom yourself to failure.
Once you’ve got an investor or two in the final stages of a deal, it’s tempting to ease your foot off the gas on pitching to other investors and wait for those one or two possibilities to pan out. But a watched pot never boils, as they say, and one of the worst things you can do when an investor is contemplating your deal is make them feel claustrophobic about it.
So give those near-closes room to breathe, and give yourself more options by continuing to pitch to other investors. You keep busy that way, and you keep your momentum as well. Better still, if investors have the sense that you’re still exploring your options, it may encourage them to move the close along more quickly on their end, to ensure that they don’t get shut out of the opportunity.
Limit Your Variables
There are enough things that can cause a deal to go south on the investor’s side, so do everything that you can to limit the risks on your end. When you discover aspects of your pitch that are making investors uneasy – whether you stumble on them yourself or the investors point them out to you – address those problem areas immediately. When it comes to securing your funding, you want to leave as little to chance as possible.
Focus on the Close
Closing the deal with an investor represents the conclusion of the pitch process – with that individual investor, at least. But it’s also just the beginning of your relationship with that investor. So while it’s tempting to rush things along and gloss over the niceties on the way to securing the check, it’s absolutely essential that you keep your focus – not only so that you can be sure that all of the loose ends are tied up, but also so that you’re sure that both you and the investor feel good about where things stand.
Things That Can Kill a Potential Deal
You want to believe that your romance with an investor will stand the test of time, but the truth is that even this late in the game, there are still things you can do to ruin your chances. Below are a few of the mistakes entrepreneurs make that can crash a negotiation before it even gets off the ground.
It’s important to remember that investment negotiations are just that – negotiations. There has to be some give and take involved, and being too uncompromising on details like minimum investment amounts, interest rates and deadlines is a quick way to cool an investor’s enthusiasm for your deal.
As eager as you are to get the money you need in the bank, keep in mind that you’re more likely to be on the investor’s timeline than your own. Many investors are seriously considering multiple deals at one time, and yours may not always take priority. And when it comes to considering your deal, investors do nothing hastily: the process of due diligence, research and follow-up takes months, not days. Pestering investors or pressuring them into a deal will not incline them to move any faster. Take a few deep breaths, and be ready to move forward when they are.
As we said before, you don’t want to make investors feel rushed or crowded in the final stages of a deal. But you don’t want to completely disappear on them, either. Make clear to investors that you’re always available to answer any questions that come up, and at the end of each talk with an investor set a definite date for your next follow-up meeting, call or email.
Failing to ask about (and ease) investor doubts
Ask early, and ask often: “Is there anything you’re not quite sure about?” Being cagey, evasive or indefinite about weak spots or uncertainties is a surefire way to scare investors off. That being said, investors understand that every investment comes with a certain amount of risk involved, and that some questions will go unanswered. So don’t make answers up just for the sake of having them, and don’t make promises you can’t keep.
Inability to stop selling
Once you’re in the habit of selling, it can be hard to stop, even when an investor is already sold on your idea. But when all that’s left to close a deal is a couple of signatures, too much song-and-dance starts to come off as inauthentic and insecure. Once you know investors are committed to investing in your company, step back and just let it happen organically.
Being indefinite about the money
With all the balls you’ll have in the air at this point – closing on multiple deals at once, squaring away paperwork and legal technicalities, maintaining positive relationships with the investors themselves – it’s surprisingly easy to lose sight of the most important one: the money itself. Be clear with investors about when and how the money will be coming to you. Until it’s in, you don’t have a deal.
Pedal to the Metal
When the deals are closed, the papers are signed, and the money is in the bank, you may think it’s time put your feet up, relax, and congratulate yourself on a job well done.
But nothing could be farther from the truth. Now that you have the funds that you need, it’s time to put that money to work! Investors want to see the good their money is doing for your company, and they want to see the chance they took on you paying off, sooner rather than later. You sold investors on your vision; now you get to give them, and yourself, the pleasure of seeing that vision become a reality.