In the previous article, we discussed negotiation tactics that you can use to develop a strong proposition for your business. You can reread it here.
In the final part, we will discuss the mistakes you may make that are holding you back from securing amazing deals. Even the best entrepreneur can make mistakes, so there’s no reason to be demotivated. The best you can do is identify the issue and learn how to prevent it from happening again in the future. That is why we will cover the five most common startup negotiation mistakes and, more importantly, how you can avoid them. Because in the world of startups, you don’t get what you deserve—you get what you negotiate.
#1. Desperation-Based Deals
The biggest mistake many entrepreneurs make is negotiating from a place of desperation. When a business is running out of money, leaders often feel pressured to accept any deal, no matter how unfavorable, just to keep the company afloat. This results in bad terms, loss of control, and regret down the line.
Remember WeWork? After its failed IPO attempt in 2019, WeWork faced a severe cash crunch and was on the brink of bankruptcy. SoftBank stepped in with a rescue package worth over $10 billion, including $5 billion in new financing, $3 billion for existing shareholders, and an accelerated $1.5 billion payment obligation. In return, SoftBank gained approximately 80% ownership of WeWork's economic interests, while Adam Neumann, the co-founder and CEO, was forced to step down with a substantial payout of $1.7 billion.
How to avoid
The key is to create alternatives before entering negotiations. Look beyond traditional venture capitalists and angel investors; consider bootstrapping, crowdfunding, or expanding revenue streams. Also, recognize that you likely have more time than you think. If you're in a weak position, delay negotiations while you build your leverage. And when you do negotiate, frame your offer as attractive to multiple parties rather than signaling a sense of urgency. Instead of saying, “We really need this funding,” say, “We have a few interested investors and are looking for the right fit.”
#2. Overvaluing Your Position
On the flip side, some entrepreneurs overestimate their startup’s worth, demanding sky-high valuations without the necessary traction to support them. They assume their revolutionary product justifies a premium price, but they set themselves up for failure without data to support their claims.
A notable case study is Juicero, a startup that raised $120 million in venture capital funding based on the belief that customers would pay a premium for its high-tech juicer. However, its downfall began when Bloomberg revealed that users could manually squeeze the juice packs by hand without needing the expensive machine, undermining its value proposition.
How to avoid
To avoid this mistake, familiarize yourself with your market realities. Research similar deals, understand customer expectations, and back up your valuation with hard data. Instead of saying, “We believe our company is worth $10 million,” say, “We have $1 million in revenue, a 50% growth rate, and three VCs interested—do you want in?” Having solid numbers makes negotiations significantly easier. Another critical step is to analyze your product from all perspectives and ensure a simple alternative does not overpower it.
#3. Lack of Preparation
Many business leaders, as well as investors, enter negotiations unprepared, assuming they can simply “wing it.” They walk into investor meetings without researching the VC’s portfolio, their investment thesis, or what matters to them. Worse, they pitch customers without understanding the problems that need to be solved.
Coinvanish was a startup that claimed to have developed a spray to make stolen cryptocurrency “disappear” so it couldn’t be traced back to its original owner. The management team lacked a basic understanding of blockchain technology, was unable to explain how their product worked, and had no clear business model. Investors dismissed it as legally and technically unfeasible.
How to avoid
Before any negotiation, gather intelligence. Who are you negotiating with? What deals have they done? What is their investment thesis? What leverage do you have? Understanding the answers to these questions will give you a considerable advantage and prevent you from walking into dead-end conversations. Another tip is to thoroughly understand the length and breadth of your product, so you can answer any question an investor may ask.
#4. Neglecting Relationships
Far too many founders burn bridges in the investment process, either by negotiating too aggressively or treating negotiations as a win-at-all-costs battle. They squeeze investors, customers, and partners so hard that they fail to build long-term relationships, which ultimately hurts their business.
Mark Zuckerberg’s negotiation style is a great counterexample. When early acquisition offers for Facebook came in, he turned them down, but he didn’t burn those bridges. Instead, he maintained those relationships, and later, the same investors and partners helped Facebook expand globally.
How to avoid
Negotiation is a long game. Even if a deal isn’t a fit today, keep the door open for future opportunities. Instead of saying, “This deal isn’t for us” or “You’re not the right investor,” say, “This isn’t a fit today, but let’s stay in touch for future opportunities.” You never know when those connections will come back around.
#5. Underestimating Timing
Timing is everything in startup negotiations. Some founders rush too quickly when they’re not ready, while others wait too long and miss opportunities. It’s rare to see founders strike the perfect balance.
A great example of this is what happened in early 2022. Many startups assumed VC funding would remain strong, but when interest rates rose, funding dried up. The startups that had raised capital in 2021, when markets were favorable, were the ones that survived. Those who waited too long struggled.
How to avoid
To avoid this mistake, understand market timing. Ask yourself: “Is this the best time for us to negotiate? Are we in a strong or weak position? Raising capital or closing deals during favorable market conditions can make all the difference.
Mastering negotiation isn’t just about knowing what to say. It’s about avoiding costly mistakes that could set your startup back years. By recognizing these five common pitfalls and implementing smart strategies, you can negotiate from a position of strength, secure better deals, and ultimately, build a more successful business.
