One step back, two steps forward

Losing a few battles is fine, provided you win the war, says Simon Cook, CEO of venture capital firm DFJ Esprit

Losing a few battles is fine, provided you win the war, says Simon Cook, CEO of venture capital firm DFJ Esprit

Losing a few battles is fine, provided you win the war, says Simon Cook, CEO of venture capital firm DFJ Esprit

I recently worked on a deal involving the simultaneous acquisition of equity stakes in several dozen high-growth companies as part of a large “secondary” venture capital deal.

Each of these companies had management teams, founders and multiple angels, VC investors and other shareholders, all with their own points for negotiation or agendas to raise. At the same time, we had our own team and set of investors to reach agreement with. In total, over 100 separate negotiations were going on over a period of several months. Inevitably we saw every style of negotiating.

The whole experience reminded me about the art of negotiation and how easily it can become an uphill endeavour as each side becomes determined to have the upper hand. Long-term success often comes from taking a different approach that embraces a solution in which both sides feel that they will do well: the often cited “win-win”.

If a settlement can be found where both sides believe they have “won”, have an incentive to perform and are rewarded for this effort, then they will each set about making the most of the deal and the outcome of the agreement will be good for all. This approach works whether dealing with suppliers, employees, customers or sales channel partners.

Here are my top tips for turning a win-lose into a win-win:

1. Don’t let go of the big picture

During negotiations, it is easy to lose track of the big picture and get lost in arguing over the smallest of details which at the time might seem critical but may ultimately be irrelevant. The stance often taken is to maximise your own position at all costs,
or to coerce the opponent into accepting your terms.

Conventional wisdom says that someone must lose if you are to win – so you must be ruthless. I don’t buy that. In my experience, there is more than one route to success.

2. Recognise the end goal

What I found interesting when negotiating this secondary deal is that we all realised we had a lot of work to do together going forward to build successful companies. While the scoring of a few points or the bettering of a specific position became
the obsession of some, it was truly inspiring to see others embrace the deal with a long-term view. They realised that we would be working together to
build value over a period of time and that there would be many points to debate in the future.

Of course, we also in turn had to demonstrate our long-term approach by forgoing, where appropriate, some of the points we were negotiating for, handing “victory” if you like to the other side.

3. Negotiate a package

Get all the points on the table early and agree an overall deal that is a balance of
the different positions. There will be compromises to be made, but often what is important to one side is less important to the other, and only by getting all the issues out upfront can a fair solution be found.

4. Put yourself in their shoes

Often, the people in a negotiation have many other influences in their lives and other matters to consider. Behaviour can often seem odd and the strong stances taken by people appear illogical or out of context.

In the current market, cash flow may be the single most important driver, and therefore a longer-term margin deal might be bettered as a trade for short-term cash advances. Investors might be fundraising themselves and have their own strategies that can influence deal terms.

5. Agree legal fees upfront

Frequently, the first item to agree and fix in a negotiation is the legal fees – so that as the negotiations run on, your bill does not.

The win-win approach to aligning interests is at the heart of private equity and venture capital. The only way venture-capital backed companies will become valuable to VCs is if all sides feel incentivised and driven to build the most successful businesses possible.

While there are always tough decisions to make on certain aspects in any business, and market conditions can and do change rapidly, it’s important not to lose sight of the fact that VCs do better in the long term by owning smaller (but still meaningful) parts of many successful companies rather than a large percentage of a few underperforming ones.

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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