Negotiating terms of financing

In the early stages of starting your business you will need to create a contract with an Angel Investor concerning what monetary support they will provide you with in exchange for what form and amount of profit they will gain from your company. This part is crucial because it is the first chance the angel has to see what kind of relationship you value them at. If you propose terms that are way too low on the reward scale they will think you are low-balling them and your investor could be lost if not second round investment opportunities at a minimum. However if you propose terms that are way too high on the reward scale then your not properly rewarding your own efforts in your company and your piece of the pie has just become smaller.

So when coming up with a structure (as we talked about last post) think about giving as truthful as a demand right off the bat. Most of these Angel Investors have more experience than you do with start up companies and will be able to tell when you are undervaluing their help. But also they most likely do not want to haggle with you on the details, so having a well researched and well thought out structural proposal can ensure that an Angel sticks around to help you with initial financing and maybe even financing in further rounds.

All this being said, there may be a time when you give your original and truthful proposal and you are still forced into a negotiation. This is dangerous territory to tread into, but by successfully negotiating you allow yourself an open door to ask for funding later down the road and you have shares to be able to offer them. Also by starting with a truthful proposal you know that you have done your part to meet them half way and that also means that if they are unwilling to yield you can walk out knowing you gave them the best deal that you could without hurting your future potential.