Investor vs. Entrepreneur: Who has the power?
In last week’s Entrepreneurship 101 lecture, Michael Erdle of Deeth Williams Wall talked about negotiating strategies. One of the questions that arose was: how can a poor entrepreneur negotiate with a powerful VC: isn’t there a power imbalance that favors the VC? After all, he/she has the money that the entrepreneur needs.
I’d answer that by saying that it is a situation more akin to the old nuclear arms standoff of mutually assured destruction, but in this case it would be more like mutually assured failure. Entrepreneurs need investors money — true. Without it they are likely to fail. But investors need good opportunities to invest in to make the sort of returns that they need. Without good deals they fail too. Successful negotiations between the two rest on the recognition that each needs the other to succeed.
Question of the Week
Are there any horror stories out there from either investors or entrepreneurs who have seen the other side fail to recognize this mutual need?
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As a Venture Group Advisor at MaRS, Tony advises entrepreneurs and high growth companies, particularly in environmental, advanced materials and manufacturing markets, with a special emphasis on mentoring and development of entrepreneurs.