10 Tips for Start-Ups Ready to Play with the “Big Boys’ – Part 2

Hopefully you read our prior blog discussing the first five tips for entrepreneurs who are entering negotiations with the “big boys.” Below are another five tips for your considerations:

1. Letter of Intent (LOI). It is common for an LOI or term sheet to be signed in connection with many different types of deals. In the acquisition context, a seller should try to negotiate as many key terms as possible while your leverage is the strongest. However, if you are the buyer, your main goal is to lock the seller into your deal for a reasonable amount of time. You should also understand that there is often concern as to whether the LOI is binding and enforceable by a court of law.
2. Be objective . Even though your start-up company is the center of your financial world, it is important to leave your emotions out of the transaction. Large companies are much more comfortable walking away from a deal because they do not become emotionally attached to it like many entrepreneurs do. Allowing yourself to fall in love with a deal can lead to poor decision-making, so it is essential for you to create an objective game plan and stick to it. This includes walking away from the transaction if necessary.
3. Maintain your leverage . Invariably, almost every deal reaches a point where the parties must face-off. In order to maintain your negotiating leverage and credibility, you must stand your ground on the deal breaker issues. In poker terms, if your bluff is called it will make it extremely difficult for you to successfully bluff again. This is one reason why it is vital to have a seasoned corporate attorney handle the negotiations.
4. Beware of negotiation games . Large companies have a variety of tactics they use in order to get their way. For example, you may be discussing the terms of the deal with somebody who is friendly and agreeable, but then the documents you are given fail to include your deal points or include clauses that weigh heavily in the larger company’s favor. At this point, your contact will blame it on the attorney and hope that you don’t catch everything they are trying to pull over on you and your attorney.
5. Retain an experienced corporate attorney . Every entrepreneur should have a seasoned lawyer protecting his or her best interests. You need an objective and knowledgeable person to not only get the deal closed, but also to inform you of any legal risks. You want somebody who will give you the good, the bad and the ugly so you are fully informed. And, if the transaction falls apart, you want the peace of mind knowing that the documents will include the appropriate protections for you and your business.