Negotiating with Venture Capitalists - Leverage, Interests, and Goals

As a partner and corporate attorney at Brown Rudnick, LLP, Mary-Laura Greely offers business-related counsel to established businesses and new ventures. Mary-Laura Greely frequently advises entrepreneurs on a wide range of matters, including venture capital, investment opportunities, and strategic planning.

In a Harvard Business Review article, Deepak Malhotra, a professor of business administration at the Harvard Business School, offered strategies for negotiating with venture capitalists (VCs). Malhotra’s primary recommendation was that entrepreneurs understand the other party’s interests and utilize sources of power in order to secure terms that are important to the venture.

For example, Malhotra states that an early-stage tech company successfully secured more funding and overcame a VC’s equity dilution proposal by explaining how diluted equity positions could cause the venture to fail and create a total loss for the VC. Malhotra’s example illustrates how entrepreneurs can gain power in negotiations by capitalizing on a VC’s interests. The example also demonstrates the importance of negotiating based on a venture’s ultimate goals, rather than short-term needs.