Andy Trattner

April 16, 2022

It's Dangerous Playing Hardball

Notes on the Blog

I hugely appreciate everyone who replied to the post on fundraising learnings! It's my first in a long time (ever?) to spur an "I really found this content valuable and worth sharing" reaction. I'm so happy to have written something useful and interesting.

Given that my current identity centers on work, and I'm now obsessing about it 24/7, this blog will likely shift a bit, from Andy's wild Ecuadorian adventures into fintech startup land.

The underlying principle won't change at all: reflecting on my experiences through the lens of my sacred texts. However, I am contemplating the right balance between publishing personally here versus on our company website, my new "CEO twitter" (coming soon!), etc. 

As we go, I'd love input from you. Reply—even just a single emoji—to let me know what resonates! Out of the 8 billion humans in the universe, you 47 are my only followers, audience, and fans. Thanks for giving me the privilege of writing to you.

It's Dangerous Playing Hardball

We closed our friends & family round over-subscribed, but investors are still interested in participating. I'm regularly getting new introductions and also waiting for responses from (thanks Jinane!) and others.

On either side of our $200k target, I had set a budget for the minimum $60k and a luxury $600k. We could certainly use a few hundred thousand dollars more, but at what cost? Benchmarking against accelerator packages from YC, Soma, and Neo, a $20M cap seems an appropriate goal. Otherwise I'd consider deferring the offer, and by May we could be looking at a much larger round. As my negotiation example in the previous post implied, deferral has a high probability of killing the deal.

In a meeting yesterday with a high net worth individual who might contribute $100k-500k, I mis-handled the transition from pitch to negotiation. Good investors will be probing you with questions in the first part, learning about your business, but ideally you want to be probing them on potential partnership in the second part, without giving away your position or any detrimental anchors. You want to entice them such that their initial offer is advantageous to you.

I did not prioritize my capacity to sufficiently focus on this high-stakes call and conducted an overly hurried conversation. They were the ones asking all the questions, and I spoke purely in statements and answers. I defaulted to presenting a nice and likable image rather than positioning myself strategically. I ended up over-sharing my thoughts and internal numbers, with far too much transparency into how other investor conversations have gone.

A better answer to "what terms are you looking for?" is the question "I'm really glad for this opportunity to discuss potential partnership! Maybe can we take a step back, and I'd love to ask you, as a much more experienced investor than me, how would you think about capitalizing this business?" Work from there to "what terms do you think are reasonable?" If needed, one can share the high market benchmarks, but no more until an offer is proposed.

I failed to speak deliberately because I was lazy. The main thing I had in my head was: "well, we already hit our numbers, so I'm definitely just going to set the price and they can take it or leave it."

That's one way to do things, but it's bothered me ever since we left the zoom. I find this to be not only a disrespectful and distasteful mindset, but also a strategic sales blunder. You will end up with unhealthy relationship foundations, less supportive partners, and fewer opportunities in the long run—probably with worse terms!

Negotiation is where emotional desires meet reality, for both you and the other party. Do your utmost to calmly and respectfully navigate both sides to a happy outcome.

It now occurs to me that there's a fundamentally better approach, to pause and be patient, saying "Let's talk about numbers and terms another time after thinking further about our potential partnership together. For now, I want to focus on making sure you feel good about moving forward with a commitment. Do you have any unanswered questions, and how inclined are you to partner with us for the long-run?"

From there, you can jointly problem-solve blockers until none remain. You are already a team moving forward together, and the numbers become secondary to your alignment. The best terms don't even include numbers! They sound like this: "Unconditionally yes, I want to invest in you. Just tell me how much, and where to send my money."

It's hard to get there, but not impossible. A dozen of our investors on uncapped SAFEs have essentially said this. Some even made the commitment years ago: "Andy, when you eventually start a company, I want to be part of it and will do what I can to invest. Just let me know."

Those kinds of relationships got me here today, and they are the ones that will carry forward. They are personal, priceless, and therefore worth immense expenditure of time and energy to cultivate, starting with the first intro phone call or zoom pitch.

A posture of generosity beats impatient hardball any day of the week.

About Andy Trattner