17 Fatal Mistakes Startups Make When Negotiating With Investors (And How To Avoid Them)

It's brutal:

The mistakes start ups make over and over again when negotiating with investors.

As if they were stuck on Groundhog Day.

For example:

• They're giving away a lot more percent than they could have.
• Or get stuck with investors they definitely shouldn't have made a deal with.

That's why I've gathered these 17 mistakes when negotiating with investors, so you don't have repeat them.

Let's get started.

1. Pitch

You think you’re there to pitch, but you’re not. 

You’re there to connect. 

Sometimes, a pitch will do that for you, but sometimes it won’t. 

The problem: 

Most startups don’t even notice the difference.

Once you can tell the difference, you can adjust your approach. 

Make sure you always connect on a level that will keep building the investor’s enthusiasm for you and your startup.

Do that, and your chances for success will skyrocket.

And sometimes it means: DON’T pitch but work on the relationship first.

2. Expect decisions too early

Most negotiations aren’t one meeting. They’re a series. 

Savvy investors want a feel for who you are, not just your business plan.

That takes time.

And while there are ways of speeding up this process, it will always be a disappointment if you expected a fast commitment but didn’t get it.

Spare yourself that disappointment.

(Which causes a bad vibe too, and that alone can kill the deal).

Don’t expect "fast cash’ or "an investment of x $$.”

Go in to build a relationship.

The money will come if the relationship is solid (and your biz plan, too).

3. Walk into the wrong meeting 

Some founders take whatever meetings they can get.

Don’t.

You should know precisely what kind of investor you’re looking for.

Know their persona. 

And don’t meet with investors who aren’t that persona.

You didn’t go to the high school ball to bring home just anyone.

You had a particular person in mind.

The same goes for investors.

Be picky.

4. Fail to assess the investor

So you sat down and talked over the deal, and it all happened so fast, and suddenly you had half a million dollars!

Great!

And a guy breathing down your neck, questioning every decision you made, and dragging your vibrant, able founder’s spirit into founder’s purgatory.

Investors are people.

People have personality traits.

Some personality traits lead them to be micromanagers from hell.

Hovering, expecting, judging, calculating, criticizing.

You just can’t seem to get them off your back.

So you need techniques for assessing what kind of investor you’ll be dealing with (after they’ve given you their money).

Don’t underestimate the importance of doing that - because not doing it can ruin you.

5. Get nervous

Nervousness signals a lack of confidence.

And it wouldn’t be so bad if you’re new at it and the investor sees that and kindly forgives you.

But at the back of their mind, every investor knows that you will have to represent your startup in many tough situations and if you’re nervous now …

What does that mean about your ability to handle stress in make-or-break moments?

So, try not to show nervousness.

Or better yet: 

Don’t BE nervous.

Simple training routines can help you build confidence.

Use them.

6. Weak mindset 

A “strong mindset” - what is that?

It’s your inner conviction of what you’re worth.

And that you can handle the tough situations you’ll face as a founder.

You feel confident - instead of insecure.

And not just about your product or service, but also about how to birth it into the world:

Into a world of sharks and competitors.

A world of pushy and strong-willed people you’ll need to collaborate with.

Like investors.

Of course, founders with a strong mindset also have to ask for help.

And for money.

But founders with a weak mindset come across as needy, and that’s a turn-off.

So even when you’re asking for help, don’t think about what you need.

Think about what you’re worth.

The opportunity you’re offering.

Discovering that strength will give you a boost.

7. Talk sums instead of % 

“We’re looking for a pre-seed investment of $350,000.”

Hmmm. Ok. And then?

This approach is not the best if you’re in a room with a serious investor.

It can work sometimes, but you can do better.

Briefly talk about your value-ad:

A great product, a great market fit, like to thrive!

Then, in an easygoing tone, find out how that aligns with your investor’s interests.

Dock onto ideals and synergies you discover.

Connect.

Then (and only then), talk valuation.

Keep it strong, and ask:

“If you’d like to be a part of this, what % are we talking about?”

You are the opportunity. 

But you can’t generate that feeling by saying, “We need $350,000.”

Don’t talk sums. Talk percentages.

8. Behave “young & inexperienced”

Some investors play the “experience” card. 

They do it subtly. Some even do it unintentionally.

“I’ve got all this worldly wisdom; come here, let me take you under my wing.”

It can feel good. Safe.

But it creates a disbalance that shouldn’t be there.

They’re not your mama (or daddy). 

They’re your investor.

Plus, if it gets out of hand, you will be stuck with the “young & inexperienced” label. 

Which will haunt you in future rounds and also when your investor wants to influence an important decision (if you’ve allowed them to take the role of the “wiser, older” ones).

So my point is:

Don’t go there.

Set the right tone from the start.

You are not defined by your level of experience but by your smarts, grit, and drive.

All the unique skills you have and your energy in bringing this startup into the world.

There’s no one quite like you.

That’s what matters (and what should shape the nature of your relationship).

P.S.: I’m not saying you shouldn’t take good advice when they offer it. Just don’t allow people to put a “y&i” label on ya  🙂

9. Fail to manage the power disbalance

“Let’s make sure we all understand who’s calling the shots here.”

Followed by a short, casual laugh, a calm, confident smile and firm eye contact.

What they’re really saying is: “Obey.”

• Sometimes they’ll say “please” and “thank you,” and it’s all very subtle.
• Sometimes they’ll offer you champagne. 🙂 

But a power move is a power move.

From pushing you to give up confidential information to rushing you to make a decision.

So many ways a person can show that they’re in charge and you’re not.

The problem:

Once you get into "obeying” mode, it’s hard to get out.

So better not to start.

Learn to notice power moves and counteract them.

Not aggressively.

With smarts.

10. Take the moral high ground

You've developed a great product! (or app, or service)

It’s gonna change the world. 

Maybe even save it!

And that might even be true - you may be right with those big assumptions.

So that’s a good thing, right?

Not always.

To see the "good’ in what you’re proposing, people need to have faith in you.

It’s not just logic; it’s about trust. 

You’re proposing something new and untested.

Often, you’re expecting people to change how they look at existing paradigms.

Things they thought were great become "faulty” by your improvement.

And what if they resist a bit, and then you give them that holier-than-thou look:

“I guess maybe you don’t have the mental faculties to understand it properly!”

Now you probably didn’t notice it, but there they were:

Micro-expressions of disgust flickered across your face, lifting a nostril.

And that’s the death of their interest in your project.

They won’t say it then and there, but you’ve (maybe without wanting to) done the moral high ground thing, and it’s ruined your chances at getting this investor hooked.

11. Get their valuation dragged into the dirt

“So, our valuation is 6.7 million.”

“Honestly, we see it at about half that - just our assessment on the basis of the information you provided.”

Can you taste the dust in your mouth?

You’ve just had your valuation dragged into the dirt.

Can you stop that from happening?

Sure.

It’s all in 

• the lead-in, 
• the relationship you’ve built, 
• the psychology of numbers,
• and, last but not least: nonverbal signs of confidence.

An example:

A founder I trained tended to lean forward in his chair after making an ask.

Which is a strong sign of “neediness.”

So we simply trained leaning back:

• at the best moment,
• the best angle, 
• confidently.

I know this seems like such a little thing.

But it was a critical component of why his demands were met 100% (amongst other things we trained).

My point:

You CAN avoid your valuation getting dragged into the dirt.

The readiness is all.

12. Take counter-proposals too personal

Negotiations are not a squeaky-clean process.

Some parts are manipulative, interests don’t align, and things get twisted.

That doesn’t mean that you should give up.

It’s better to go in knowing what it’ll be like, and not expecting unrealistic "niceness.”

Then, if you say, “Our valuation is 6.7 million,” and they reply:

“Honestly, we see it at about half that” it’s not a big deal.

They’re just doing their job the best way they know how.

And sometimes, that means people play tough.

Now, if you can handle a tough moment professionally, that’ll open up a lot more opportunities than if you get rattled by it.

So don’t get rattled.

Stay on track and do your thing.

In quite a few instances I know of, this wasn’t even a serious counteroffer.

The investors just wanted to see how the founders reacted under stress.

They reacted well - a huge plus.

In one case, the investors agreed to the initial valuation. (100% instead of 50!)

Because it’s not just about the money.

Many pros will say they mainly invest in your personal qualities:

• confident when challenged,
• great inner balance,
• a winner’s mindset.

The good news is:

That’s trainable.

13. Pretend you understand

Not all investment structures are self-explanatory.

So, if the investor suggests something grand-sounding you’ve never heard of before, like a SPAC IPO, don’t just nod and say, “that sounds fascinating.” 

People can smell it when you don’t have a clue what you’re talking about, making you less trustworthy. 

And generally, people care more about trust than if you’re the brightest bulb in the room. 

So just ask. 

It’s no biggie.

Plus: 

People love explaining stuff.

It makes them feel like experts. Like mentors.

So let them do that and build a good vibe.

That’s the smarter move.

14. Speak too fast 

How you speak signals all kinds of things: 

Confidence, intelligence, fear, humor, respect.

It’s a long list.

Speaking too fast (something I do unless I consciously slow it down) can signal 2 things:

1. your mind is racing, or 

2. your mind is racing.

And it depends 100% on your counterpart which of these two they pick up on.

Because they’re not the same.

(Yeah, I know, they look the same, written down.)

But here’s what they really mean:

1. you’re so incredibly intelligent, a racing mind is your factory setting, or

2. you’re scared and hectic and out of control.

And you have zero influence over which conclusion they choose.

So … please … just … slow … it … d-o–w—n.

We call that "risk management."

15. Talk too much 

Are you a talker or a listener?

Or both?

When startups meet investors, they often think they have to "persuade” or "convince.”

That their main job in that meeting is talking.

It’s not.

Sure, you have to provide crucial info.

But you should also find out as much as possible about your potential investor.

It’s going to be an important relationship, so you want to know who you’re dealing with, right?

But how do you do that?

What are some great questions to ask?

That’s the first thing you should decide as you prep for the meeting.

Not what to say, but what questions to ask.

16. Go in unprepared

How prepared is prepared enough?

Let’s look at what you can do to be well-prepared for a meeting with investors:

1. Find out what their background is.
2. What’s their investment history? What are their preferences?
3. If it’s a company, find out the organizational structure and where they sit in it.
4. Is it going to be "smart’ or "dumb’ money?
5. Is there a sector preference, and how do you fit in?

… I could go on.

But there’s one thing that gets overlooked all the time.

How prepared are you in terms of:

• confidence,
• great reflexes, and 
• emotional self-control?

That’s just as important, and founders ignore it at their peril.

17. Don’t have a Go-Story

“Ok, so then you’re on board?”

“Yeah, sounds great! Let me give it some thought - I’ll get back to you.”

Sometimes the conversation ends at this point.

The investors sounded like they were on board for a moment.

But then they never got back to you.

What went wrong?

You didn’t have a go-story.

A go-story is what you tell investors at that moment before you say:

“Looking forward to hearing from you,” and part ways.

A go-story is a vision of a celebration.

That means:

You’re putting the imagination of future successes in your investor’s head right now.

By painting a clear picture. Like a future Kodak moment.

It’s a simple method that heightens engagement and enthusiasm.

And it can make the difference between them calling you … or not.

P.S.: “I’ll get back to you” is never as good as setting a date for the next meeting. 

Preferably, do that.