Haggling

Growing up, I thought the price asked was the price. The only decision was whether or not you wanted to pay it.

As I moved into adulthood, started hanging out with the Gotham Gal and a bunch of friends, and entered the world of business, I learned that the price was what you agreed to pay for something, not what was asked.

When I started out in VC in the mid 80s, the investors usually started the price negotiation. The founder would come in and pitch, and if the investors liked what they heard, an offer would be made.

It is very different now. Founders have an asking price when they walk in the door. And often VCs treat that asking price like I treated prices as a kid. The only decision is whether or not you want to pay it.

The reason for this is that the VC market is highly liquid and there are many buyers out there. Investors understand that even if they won’t pay the asking price, someone will. And so they treat it like it’s “take it or leave it.”

But I am not a fan of that approach. I prefer to have a discussion about the asking price. If a founder says they are thinking of raising $10mm for 20% of the Company, I like to reply with something like “We were thinking of $6mm for 20%”, thereby setting up a discussion of the price.

It doesn’t always work. Many founders reply with something like “I’ve got term sheets at that price already” which basically means “take it or leave it.”

But even then, I have found there is a way to have a price negotiation if both sides are looking to do business with each other.

The key is doing it respectfully and honestly. I feel like the sooner you have the price conversation the better. The worst thing is dragging a founder along in a process with them thinking you are at their price when you are not.

Negotiation is an important part of any business transaction. It reveals something about both parties and helps them understand each other and decide if they want to work together. I would encourage everyone to seek a negotiation and engage in it enthusiastically. Doing a deal without a negotiation feels like a missed opportunity to me.