people sitting around conference table negotiating

Negotiations- Is it winner take all?

Ray Fitzpatrick

Director of Investments

I was watching a show last night and there was a typical scene where the Billionaire business-person was claiming that “this is a negotiation, and negotiations are what I do best”. The idea here is that one person would win and the other would lose. This scene led me to think about a Negotiation course I took at UC Berkeley a few years back, that really tackled this perception.

First off, there really are winner take all negotiations. Think about the time that you bought or sold a car or a house. When you sell a car to a person, the expectation is that you are going to close the transaction (sale) and never see each other again. At least, that has been my experience where I haven’t become good friends with the person, I met in the Walmart parking lot to sell my 2004 Chevy Blazer to. Now since I never intend to see this person again, what is my incentive to share truthful information on the vehicle other than my own moral obligation. So, what if I know that the heat doesn’t blow very warm in the winter, it’s July and +30 Degrees out now. I’m never going to see this person again, so that will be their problem. My goal is to get as much money for my vehicle and that’s it.

Now this may all sound horrible to you. However, I also know that when I bought used cars in the past I already kind of knew this. So, that’s why I brought it to a mechanic to inspect before buying. There is a natural expectation here that both sides are not going to reveal everything-Like when the potential car purchaser tells you they only have Five Thousand dollars to spend and that’s it! So, we play the negotiation game of winner take all.

However, not all negotiations are like this. Actually, MOST negotiations aren’t like this at all. Most negotiations involve an integrative component where the relationship matters and finding a win-win outcome is desired. This is how I view negotiations at NBIF where we make equity investments into start-ups.

We’ve all seen the popular TV show aimed at new company investments, which has really been the best and worse thing for me in the VC profession. It helps me explain my job “We invest in a company and in return we get shares and own a certain % of it”. That’s the good thing. The bad thing is that the deals they do sometimes end up with the investors owning a huge portion of the company. I think it’s these negotiations (that are winner take all and “made for TV”) are what entrepreneurs expect when dealing with us. At NBIF, we’re a minority owner.

In reality, we have no incentive to negotiate like this. We aim to build a partnership with a start-up entrepreneur. In some cases, we’ve had company’s in our portfolio for over 10 years now. If we start the relationship off wrong where someone thinks they were taken advantage of, then they are going to spend the next (potentially) 10+ years trying to get back what they think they lost.

Now in my almost 7 years at NBIF not every negotiation has gone well. Every deal is different so there are always things that come up. There has been misalignment of expectations on both sides, 3rd parties like other investors/lawyers in the mix, and even myself learning the ropes on what I could or couldn’t live with when looking at a deal. Learning the VC industry takes time (and many deals).

So how can you make sure you get a win-win deal with NBIF when you approach us for investment? The best thing you can do is prepare. We list all of our portfolio companies on our webpage. Talk to them, ask about what it was like working with us and what to expect. Come up with a list of “walk away” items, for things you can’t accept. We do that too. And finally, remember that your negotiating with someone who is looking to be a partner on your entrepreneurial journey. Not someone looking to sell you their 2004 Chevy Blazer in the Walmart parking lot for as much as he can get.  

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