In this tough economic climate, term sheets favorable for the entrepreneur have become extinct.  In a sobering counterbalance to the heady days of the NASDAQ boom, valuations have dropped, and investors demand full ratchet provisions on down rounds and tough antidilution requirements on up rounds.  While this may be bad news for the entrepreneur, it is good news for the angel investor who can find good deals at low prices. No matter what side of the table you happen to sit on, however, negotiating term sheets is an important step in the investment process.

           The following thoughts, excerpted from chapter 6 of Every Business Needs an Angel, by John May and Cal Simmons,* should be kept in mind as one negotiates in any economic climate:

When negotiations drag, the reason could be a trivial holdup in exchanging documents, personal doubts or a serious deadlock.  Don’t make assumptions about the reason for a delay  -- find out and confront it.

In arriving at a value for your company, try to establish a range instead of a single number.  It’s more realistic and shows flexibility.

To find an independent professional advisor to help you in negotiations, contact someone with an entrepreneurship program in a college business school, other CEOs who have gone through the process, or a venture trade association like the National Venture Capital Association in Arlington, Virginia. 

            Useful sources of information on industry multiples and ratios are publications issued by Standard and Poor and Dun and Bradstreet, as well as numerous business education websites, such as New York University Leonard N. Sloan School of Business site (www.stern.nyu.edu).

Negotiating should not be taken lightly or delegated to staff or advisors. Be prepared for give and take, be sure of your numbers and reasoning behind each key point and be ready to horsetraded on non-essential points.       

            Remember, when entrepreneurs and angels negotiate, the purpose is to forge a win-win partnership.  Keep this big picture in mind and your negotiations should always go smoothly.