Own The Negotiation
We had a very interesting session with Sarah Reed of Lowenstein Sandler and Jason Mendelson of The Foundry Group yesterday afternoon. Sarah is a recognized expert on the legal aspects of venture capital financings and a shreeeeewd negotiator. She just looks and talks like she can seriously whip some a**. I love it.
Sarah and Jason organized an interesting exercise for all of us to participate in. Each Techstar was paired up with another and given a specific role in a real estate deal: buyer or seller. In a nutshell, the negotiation was between two families over a half-lot situated in between the two properties. The prep work asked you to identify specific low and high dollar amounts for which you would be satisfied closing. Then we actually argued our points. I was paired up with Samantha Murphy from The Highway Girl and we settled on $22.5K. I low-balled the heck out of her early on and was prepared to go up to $40K. My optimal amount, however, was $20K and she talked me up to 22.5K. We both left the deal feeling satisfied. TravelFli co-founder and chief negotiator, Austin, won the best negotiating settlement as he was able to talk his buyer into paying $35K for the property…a good $15K higher than anybody else was able to wager. This was mostly because Austin high-balled the heck out of him with an initial anchor of 60K.
The best line of the day in negotiations went to Andrew Hyde when he announced to his seller in a somber Hyde-like manner: “the city is actually going to build a small power plant on the property.” LOL. Nice job Andrew. Remind us to take everything you say with a grain of salt. Power plant? Really?
At the end of the day, our group learned several key tactics for negotiating. To begin with, it’s a solid strategy to try to make them throw out the first number. But if you absolutely have to start the negotiations - DO NOT throw out the second or third number. Remember - you’re not negotiating with yourself. Don’t be afraid to remind them of this.
Secondly, it’s important to remember that everybody has an advantage over everybody else. The challenge is finding your opponent’s weak spot and capitalizing on it. So for instance, if you’re negotiating with Jason, try to play his ego and talk about his band or his remarkable cowbell skills.
Thirdly, finding an anchor is important. The exercise illustrated that it is also effective to throw out a really high or low anchor. Be ridiculously out of line. Who cares?
Lastly, try not to have ‘buyer’s remorse’ after you close a deal. It’s never going to be perfect and there is a good chance that you will both be sort of pissed off. That’s ok. Be happy about it, learn from it, and don’t beat yourself up for leaving money on the table.
Sarah was a trooper for coming all the way to Boulder to talk with Techstars. Thanks a bunch for your time —- I think we’re all better-prepared to face the mean VC’s now. :)
