Scott Rifkin regularly locate themselves in high-stakes negotiations with huge, savvy players, with massive negotiating power (noted herein as “Big Boys”) — whether or not it’s a project capital company in reference to a financing or a non-public fairness firm in reference to the sale of the entrepreneur’s enterprise; the scenario can certainly be daunting. Below are ten guidelines for marketers to help them thru this procedure.
1. Retain a Strong Team. In dealmaking as in business, you are simplest as exact as your team. Accordingly, the first step for the entrepreneur is to maintain a robust transaction crew — and the quarterback of the crew have to be an experienced company legal professional. Indeed, an skilled company legal professional will now not most effective add price to the transaction, but can also assist the entrepreneur construct-out the team and tailor it to the unique deal (e.G., in an acquisition, a sturdy tax lawyer is imperative to help shape the deal or in a licensing transaction, a sturdy IP attorney is regularly important, and so forth.). The Big Boys are usually represented through huge, aggressive law firms, and the entrepreneur should make certain that his/her group is as much as the mission.
2. Do Your Diligence. Due diligence is usually a essential component to any deal. One form of diligence that is frequently overlooked, however, is an research of the men on the other facet of the table. What’s the recognition of the Big Boy — e.G., is this a project capital or private fairness company that treats its portfolio corporations well or is this a company that squeezes the little guy? What approximately the unique people with whom you’re dealing? What are their reputations? Are they suitable guys with whom to partner or are they jerks? Indeed, the net is a superb place to begin for the entrepreneur who desires history statistics on a specific firm/character. At a minimal, the entrepreneur ought to track down other marketers or CEO’s who’ve carried out offers with the guys on the opposite facet of the desk and make an informed judgment as to whether or not they are guys with whom the entrepreneur desires to do business.
Three. Create a Competitive Environment. There is not anything in order to give the entrepreneur greater leverage in connection with any negotiation with a Big Boy than a aggressive surroundings (or the belief of identical). Indeed, every investment banker really worth his salt is familiar with this easy proposition. Accordingly, a start-up searching for a Series A round financing from a undertaking capital company, as an example, will genuinely be extra appealing if such company learns that different task capital companies are inquisitive about the start-up. Not handiest does competition validate a company’s thinking, but additionally it appeals to the human nature of the individuals worried. Indeed, every person wishes what he doesn’t have and/or what a person else needs. The entrepreneur can have robust leverage with respect to charge and other material terms as competition are played off of every different and will hence strike the exceptional feasible deal. One caveat: as mentioned underneath, it is probably first-rate left to a sturdy corporate legal professional to play this sport on behalf of the entrepreneur; indeed, this method must be played carefully and is higher-handled with the aid of someone with enjoy.
4. Run the Negotiations Through the Lawyers. The entrepreneur ought to do what he does pleasant — i.E., construct corporations — and go away the negotiating to a robust company lawyer. Entrepreneurs are typically no fit for sophisticated project capitalists or private equity or corporate development guys who do deals for a living. Accordingly, a smart entrepreneur will live above the fray and let his corporate lawyer run the deal. The Big Boys may additionally attempt to do an stop-run across the entrepreneur’s legal professional (and might even criticize the legal professional and attempt to turn the entrepreneur in opposition to him), but the entrepreneur have to continue to be disciplined and avoid “side-bar” negotiations with the predominant(s) on the opposite facet. This technique is particularly crucial wherein the entrepreneur could have an ongoing relationship with the opposite side submit-ultimate; the goal is for that reason now not to poison that courting with testy, acrimonious negotiations (i.E., let the lawyers combat it out).
5. Develop a Game Plan. Every deal is unique — one-of-a-kind players, distinctive negotiating leverage, specific risks, exceptional timing — and it is accordingly crucial that the entrepreneur sit down along with his transaction crew and strategize; in brief, he have to expand a recreation plan after which attempt to execute the plan. Indeed, doing offers isn’t any distinctive than some other assignment: the entrepreneur should suppose thru the troubles with a smart, experienced group, set affordable milestones and then monitor the development. Rigorous analysis throughout this manner is paramount.
6. Be Careful with LOI’s. A letter of motive (an “LOI”) — once in a while called a term sheet or memorandum of knowledge — is frequently completed in connection with all sorts of deals. The entrepreneur must understand that, relying at the deal and the context, there are specific LOI strategies and issues that ought to be addressed. For example, in the purchase context, a selling entrepreneur have to try to negotiate all of the cloth phrases of the deal within the LOI whilst the entrepreneur’s leverage is the strongest; then again, a shopping for entrepreneur’s most important intention with admire to the LOI is simply to lock-up the vendor and limit it from shopping the deal for a reasonable period of time. Another important subject with admire to LOI’s is that they will be deemed enforceable through a courtroom of regulation (i.E., be deemed a binding settlement) — notwithstanding explicit language in the LOI to the contrary. The lesson right here is simple: an LOI have to no longer be done with out the advice of equipped suggest.
7. Check Your Emotions at the Door. Big Boys are masters at taking their emotions out of transactions and being extremely disciplined. Indeed, Big Boys will generally stroll from a deal in the event that they get out in their comfort region (e.G., with respect to the threat profile, fee, and so on.) — irrespective of how lots money and time they have expended. Entrepreneurs, however (specially folks that have not had a good deal deal enjoy), frequently come to be emotionally wedded to a selected transaction and are not able to maintain their objectivity the similarly along they get within the manner. Too frequently, an entrepreneur will fall in love with a specific deal — like the first-time domestic consumer — a good way to cause poor decision-making and risky positions. (“I do not care if it has termites or there’s a cesspool hassle, I love this house” will become “I don’t care if I ought to for my part guarantee all of the reps and warranties with out a cap on liability, I love this deal.”) It is crucial that the entrepreneur understand this dynamic and cope with it hence.
8. Don’t Blink First. There comes a point in time in just about every deal wherein each sides have dug into positive positions and the question becomes which aspect will blink first; e.G., in a task capital financing, possibly the difficulty is manage of the board or, in an acquisition, perhaps the issue is carve-outs to the cap on legal responsibility. Whatever the issue, the lesson for the entrepreneur is apparent (albeit difficult to execute): as a way to preserve negotiating leverage and credibility, the entrepreneur have to attempt not to blink first. Indeed, if the entrepreneur has flatly said that “this difficulty is a dealbreaker”, however then blinks and nevertheless concurs to move forward with the transaction no matter no longer getting what he requested for, he will have absolutely undermined his credibility and could have his clock cleaned with recognize to another full-size problems. Like poker, in case your bluff gets referred to as, it’ll be hard to bluff once more. Which brings us returned to the essential tip in #4 above: run the negotiations through an skilled corporate legal professional who does these items for a residing.
Nine. Watch-out for the “Good-Cop, Bad-Cop” Routine. Big Boys employ all kinds of negotiating games, and one in all their favorites is the “top-cop, bad-cop” recurring. The Big Boy, of path, plays the good cop and is smooth, pleasant and agreeable and makes the entrepreneur experience like any of his crucial problems are being taken care of. But then the files arrive — chock complete of bells and whistles and boilerplate provisions designed to shield the Big Boy and often with full-size gaps at the deal factors. When the Big Boy is wondered as to what is taking place right here, the answer, of route, is “it’s my attorney’s fault” (i.E., the “terrible cop”). This recreation will keep at some stage in the negotiating process because the Big Boy charms the entrepreneur even as his attorneys pound away on every widespread difficulty.
10. Hire an Aggressive Corporate Lawyer to Watch Your Back. As a company legal professional at primary New York law companies, I even have discovered first-hand the significance of looking my clients’ returned. Indeed, I even have labored on billion-greenback deals in which, prior to signing, emotions run excessive (as mentioned above), and a few of the tremendous risks are minimized or pushed-aside via funding bankers and/or enterprise men with the intention to get the deals performed. My activity, probably extra essential than some thing, is to sober the entrepreneur and lay-out all of the good sized criminal dangers — after which push difficult to barter suitable protections. If the deal sours and court cases are filed, nicely-drafted files emerge as like an coverage coverage to the entrepreneur — and what entrepreneur doesn’t have coverage?