How to Negotiate With Investors with Chris Hutchins

Hello, my friends, and welcome to another exciting episode of Negotiate Anything. This show is produced by the American Negotiation Institute and with over 5 million downloads and listeners in over 180 countries, listeners just like you have made this the number one negotiation podcast in the world. Hi, my name is Kwame Christian and I am the founder and CEO of the American Negotiation Institute here at A&I. We believe that the best things in life are on the other side of difficult conversations. And we are passionate about providing you with the best content that will help you to make your difficult conversations easier, both at work and at home. Lastly, I want to remind you that we offer consulting and conduct trainings, both virtually and in person all around the world. Our focus is in three main areas. First, negotiation and conflict resolution. Second, leadership. And lastly, diversity, equity, and inclusion. Check the link in the description below to learn more about how we could work with you and your team. And now, without further ado, let's jump into the interview. Chris, thanks for joining us today.

Yeah, thanks for having me. Excited to be here.

Yeah, I'm excited to return the favor. So how would you get us started? By telling us a little bit about yourself and what you do.

Yeah, so I probably have one of those jack of all trades, master of none backgrounds where I've kind of been in investment banking. I've been a founder twice, sold two companies, raised money at both of them. I've been on the venture capital side. Right now I build products to help people invest to build their wealth at Wealthfront. And I host a podcast that you graciously join me on called all the Hacks, where we explore how to upgrade life, money, travel, all while spending less and saving more.

I love it. And listeners, make sure to check out that show. It is phenomenal, incredibly successful in a short period of time. So kudos to you, my friend. Thank you. So, listeners, on this episode, we're going to talk about the keys to negotiating in the investment world. And I know some of you are saying, but I am not in the investment world in that way. Listen, don't worry about it. We are going to pull out some of those general principles that will apply in all types of situations. And so Chris is the perfect person to talk about this. And so we're going to approach this kind of like from a narrative form. And so we're going to play the role of the entrepreneur who's trying to court investors and negotiate effectively. And Chris is going to walk us through how they can do so and what strategies and tactics they can use along the way. And so, Chris, let's say if we are that entrepreneur and we want to get an investor, how does that process even begin?

Yeah, and to your point about this being for anyone, it turns out that a big piece of raising capital for a company is just about storytelling and selling yourself. So the lessons here apply to basically anything, whether you're looking for a new job, whether you're a manager trying to hire someone, it's really, you know, it all comes down to storytelling. And, you know, just being a likable person is, is a really important part of that. So, you know, I've started two companies where we've raised, I think in the first one, two or $3 million, and the second one $10 million. The, the process always starts with deciding what kind of process you want. Are you just looking for some friends and family that might write small checks? Are you trying to seek out investors? So if you're seeking out real kind of venture capital or institutional investors, I think that you kind of think of the whole process as a race where you want to have everyone lined up so that you have a really, really exciting finish. So if you were watching a horse race and there's one horse that's just clearly far and above you're going to win, that's great for, for the person to bet on that horse, but there's not a lot going on. There's. There's just one thing happening, and that's all that anyone's watching. You want to create a dynamic where people are excited by you and have so much fear that someone else might win this deal that they have to move fast because in fundraising, fast moving deal is, is kind of the best because people are, are willing to be more forgiving and, you know, negotiate in your favor because they want to make sure they win.

That makes a lot of sense. And so it sounds like we are kind of triggering a little bit of scarcity and competition through this process, right?

Yeah. I think every founder and entrepreneur that I've talked to that's had a successful fundraise, and by the way, I've been on the other side of the table. So as an investor trying to get into deals that are hot is like the whole game, right? If, you know, people will talk to within an investment firm, they'll say, you know, who else was up for winning this deal? It's like almost like a badge of honor that you won the hot deal. And so creating that hotness is so important. And so I always say, make a big list of everyone you want to talk to before you're even ready to fundraise, kind of like make sure you've built enough of a relationship that you could get an introduction, you've got an email address, and then try to kick everything off at the same time and block everything off. Say, you know, this is my three weeks for this project. I'm going to go all in so that I can get the most out of the experience.

See, what's really interesting about this is that, yes, at the beginning, you talked about the importance of storytelling and selling, not just the business, but also yourself. But we've spent the majority of our time, time, the short time we've spent together here, focusing on creating this dynamic, this atmosphere of competition, of scarcity and fear, of missing out. And it's almost like the emotional contagion that can occur within a pool of investors is more persuasive than the nuances of the business itself. Tell me if I'm hot or cold on that one.

Yeah. So at least in the early days, right, when we first raised money at both the companies I was a co founder at, we didn't have a product yet, right? So, so they were betting on the people. So I always said when I was talking to other investors as an investor, I said, look, we were looking for a company that either had traction, we were looking for a team that we wildly believed in. We were looking for people that were really passionate for the product, and we're looking for a big market opportunity. And so not. Some of those things aren't there. Like, you're great if you get two out of three or three out of three, but you're okay with one out of three. And so at the end of the day, there's very limited information because there's not a product yet. Often in the, in the early stages, this all changes. If you're five years into a company and you have metrics and you have revenue, but in the early days, it's, you know, the signals are, how hot is this deal? What does someone know that I don't know? About the people, about the space, about the competition that could. Could come up. And so that's about creating this race dynamic. And then there's the person. Do I want to bet on this person? And so I think the two things that you can do to be more successful is it all revolves around a pitch in this world, which is, you know, you have and you. If you equate it to interviewing for a job, it all revolves around that interview. How do you make the most out of the small period of Time that you're in front of the person you're trying to negotiate with, and then how do you make the most of the entire dynamic that will shape the process? So I think you're, you're warm and in that it is really important to run an efficient process and create the kind of dynamics you need to be successful in your negotiation. But it is also important when you're in the room to really wow someone. And that's all about storytelling. It's all about likability. And, you know, obviously you need to have a good product. Right. You can't be selling if I go have the most amazing job process and I have the most likable story, but I'm applying to be a surgeon. Like, I'm not getting that job. I have no practical, you know, training to do that. So, you know, you have to have a good, good product, which in many cases is yourself. But the process is also so important.

Yeah, I think that's, that's a really great point because again, we are the product in, in not just in the investing world, but also in general, people are going to bet on us. And so when it comes to those key triggers that people are going to look for when they say, hey, you know Chris Hutchins, I'm going to bet on him. All right, so what do you think those key elements that people are looking for are in this part of the process?

I think it's about passion and likability and competence. So what I was looking for. So starting company is really hard right there. Every day it's another problem, another fire to fight, another issue. And so it gets harder than it is when you first start. There's nothing easier than the first day when you're like, all excited. This is going to be amazing. I haven't had to fight the fires. And so investors are looking for entrepreneurs who are really passionate. Not just passionate today, but something about their personality, their experience, their history has made them passionate about this space, such that they are going to be able to fight through all the hard times. So I always tell people, look, if you aren't so excited about this company that you can convince someone that you are, you were put on this earth to build this business, then you're going to struggle because they're going to see right through that. So if you say, look, I know that NFTs are really hot in the crypto world right now, I'm going to start an NFT company. But you can't convince someone that that's something that you stay up late Researching and you spend time on the weekends doing. They're going to see through the fact that you're just trying to kind of capitalize on an opportunity. And unless you have a resume that shows your consistent ability to do that, I, as an investor, was kind of very weary. But if you're three people who've worked in education and technology and you found this opportunity to make the workplace or the educational space much more efficient. A company I invested in called Clever was that team. And I was like, I don't know anything about educational software. But you guys are so fired up about this and you have an idea that, best I can tell, seems reasonable and you have the capabilities to build a company. I was in, I invested and I didn't know much about the space. It wasn't about whether the software was good. It was about that these three guys were so passionate about what they were doing that I knew that they could fight through any of the problems they faced.

Yep, makes sense. Because as the owner of a company too, they're going to be those days where the only thing that gets you through is your passion, drive, determination. And you're not going to have that if you don't have a clear sense of purpose, you know? So it's important to convey that now for people who are not high energy. Right. Because when we think about passion, we think about a lot of energy, effervescent personalities, those type of things. But not everybody has that personality type. If you're somebody who's a little bit more low key, a little bit more reserved, how do you display that passion while still being authentic to who you are? Does your company invest in professional development training? If you believe that your team would benefit from a negotiation workshop, all you need to do is go to our website, fill out the workshop request form, and then we'll set up a time to chat. These workshops are completely customizable, and we've done them all around the country. Negotiation and conflict resolution skills are beneficial across all professions, but they're especially useful in procurement, purchasing, sales, sourcing, and contract management. Our calendar is filling up quickly and we even have some workshops scheduled for next year if you think you might want one. I'd suggest reaching out soon so you don't miss out. Check out the link in the description to learn more. And now back to the show.

Yeah, I mean, I think there's, there's various different ways to kind of quote unquote, own the room. And you can do that through competence, right? You don't have to do that through energy you can come in and say, here's, here's what I've learned about this space. Here's why I'm so excited about the space. You could do it in a calm, cool, collected manner that is not, you know, gregarious and outgoing. And I've invested in those companies also. There's lots of engineers who are not kind of own the room kind of people with their personality, but they are own the room with their ideas and their intellect and their ability to listen. We talked in, in my podcast about listening being a really important part of negotiating. Understanding the questions people are asking and being able to answer them, I think is a really, really important part of fundraising as a company and being able to sell yourself in general. Showing people that you've thought through the things that they have questions about. Because, look, if you're starting this business and someone who's hearing about it for the first time has questions and you haven't thought about those questions, like, that's concerning. So I spent so much time before pitching investors, going through every single question I thought they could answer. And I actually went and made a deck, like a, you know, a PowerPoint style deck with Google Slides, and I had a slide for every question anyone could ask. And I actually, like, committed to memory what numbers they were. So instead of being able to sell as a narrative the answer to a question, you know, and make it up on the fly, I was prepared so someone would say, you know, we raised money for a company in the financial advice space. And they're like, how do financial advisors spend their time? And instead of saying, well, you know, this is kind of how I just jumped to slide 73. And I'm like, this is exactly how they spend their time. Now. I've already thought about that question and kind of conveyed the fact that I'm prepared and you can be prepared without being having a boisterous personality. And you can convey passion by talking at length about things. We probably all have a friend who's kind of super nerdy about something, and maybe she isn't crazy excited every time, but she could just go deep for hours. And you can convey that with any personality.

That's great. I love that point. One of the things that we talked about beforehand was the importance of negotiating the terms, negotiating the right terms, and also how timing plays into how and what you negotiate. Can you tell the listeners about that too?

Yeah. So, you know, first I'll, I'll jump back quick to this race dynamic. Whenever you're trying to get something done, it's let's have everyone at the same place. So you don't want to be negotiating your terms with one investor while you're just meeting the other investor. And so I would always try to run things where, you know, it's like three weeks. The first week it's an intro meeting, the second week it's a follow up meeting. And the third week we're going to kind of pitch the entire investing team. Usually there's a partnership, and if someone came in late to the process, I tried to say, look, we're, we're, we're already a step ahead. So if we could try to get these first two meetings done this week, that would be great. And if someone was pushing and said, hey, let's have that second meeting tomorrow, I'd say, actually, could we do that second meeting next week? So once you've got everyone on this cadence, you got to figure out how the deal is going to get done. How is the person on the other side of the table going to make a decision? And in a lot of cases, this is true for hiring, this is true for investing. There's a team. And so understanding whether the person you're talking to could even make the decision on their own, and if not, what aspects of the decision get made by a committee or a group of people. And so with investing, I learned that ultimately the partnership is going to have a conversation and decide whether this deal gets done, but they're not going to decide on every single term. They're going to leave the point person up to some of it. So I focused on, let's make sure we're only talking about the things that are going to matter for that conversation. So there are a handful of subtle, subtle decisions that don't matter. And investing it might be how much equity is each individual person on the team going to get or the exact dollar amount of people that you're going to raise money from those things. I punted and said, well, we can talk about those later. Let's talk about what the value of my business is, how much you're going to be investing, and, and let's, let's get through that first.

It's interesting, Chris, so it sounds like what we're doing is we're figuring out the most important things to address, and we're addressing those things first and recognizing that some of the smaller details don't need to be addressed and fully articulated at this time. Is that right?

Yeah, it's, it's trying to. Exactly correct. Right. I bought a car once, and I remember negotiating and the price of the car was something that the sales guy had to keep going back and forth the room in the back and come back with. And, and then at the end I said, oh, okay, we, we got the price. I'll do this if you throw in like the floor mats. And he was like, sure, we'll do that. So clearly he didn't need to go into that back room to talk about floor mats. So it was a waste of time if I had brought them up earlier because I don't need the guy in the back thinking that I'm just trying to get more and more from this deal. So I was like, let's only talk about what needs to be discussed now. And let's do that up until we've decided on those decisions and then we can talk about the next ones. And you can kind of move through the process of, of negotiation, which at least when you're raising money for a company can be very, very multi step. It's oh, who's going to be, who else is investing? You know, how, how are we going to structure this round? How are we going to announce it to the public and all those things. But you don't need to figure it all out up front. You need to figure out just what you need.

Yep. And another thing that you mentioned was timing. So recognizing that some things are easier to negotiate at different times in the process, can you give an example of what that would look like?

Yeah. So I think at the beginning it's interesting when you're trying to raise money or interview for a job or there's probably so many applications, the first conversation is not about trying to get hired, it's about trying to get to the second meeting. It's not about trying to get someone to commit to investing in your company in the first meeting, it's trying to get them to commit to introducing you to another partner. So in the first meeting, I would sometimes only show a teaser of the company. I wouldn't go into all the details because I wanted to leave someone asking more and they'd say, oh, can we dive into some of the metrics of how you think this business will work? I say, that's a great topic. I have some slides that let's bring that up if it makes sense to have another meeting. So you could kind of delay some of these things for that next meeting. So I was just trying to negotiate in the first meeting. I was negotiating for a second meeting, not for an investment. And when you get to the final meeting, now you're negotiating for an investment. So now all the stakes are on the table and you're trying to get the deal closed, but you're still not negotiating for all the terms. You're trying to get people to say, I want to invest in this company. And that's where some of the competitive dynamic comes in. It was really important, I think, at least in startup fundraising, for people to get a sense that this was going to be a hot deal. Because as an investor, you always want the option value. If you have the ability to invest in this company now or in a year, I'd rather do it in a year. I'll have more information. So why would I do it now if I could do it in a year? Well, one, the company might run out of money, but if that's the case, that's a bad situation. I might not want to invest in that company, but I want to do it now because I don't want someone else to do it if I'm hiring. I don't want someone else to hire this employee. And so if they're passively looking, you might drag them along. The moment they say, hey, I have another offer, you're like, scrambling. So my goal was to make the timing work, get everyone who didn't, who wasn't serious out of the process, because so many people are sitting around waiting just to see what happens. So after two days, I sent all the investors I met with an email that said, hey, things are moving quickly. If you're not interested, no worries. If so, let's set up a next meeting. And I made it seem. Which was, you know, it can be risky, but I made it seem like I didn't need them because at the end of the day, if that email is all they needed to say, no, they weren't interested anyways. So, like you, you might think, oh, if I say that, they might walk away. The reality is they were going to walk away anyways. So accepting that the goal is to only have people in your kind of sales funnel that are serious, because you can spend time with those people and determine whether you need to add more people. So it's like this constant, like, let's go pitch 10 people. Let's quickly follow up to see if they're serious. If they're not. Now there's two people left. Let's go pitch another 10 people. Now we've got four really serious partners out of that. Let's go do a follow on. Make sure they're that now try to get. My goal is to get the number down as much as Possible. Obviously, I'd rather have, you know, 10 people interested, but I want to get all the no's out as fast as I can so I'm not wasting time. Because this can be a time suck, right? Any process. We've all looked for jobs, what a time suck. Doing interviews, writing cover letters, sending out resumes. It's like, how, how quickly can you figure out if this company is interested? And if not, let's stop trying to scour LinkedIn for a friend of a friend who can put in a good word because the company's not even interested. And so the faster you can figure that out, the better, so you can focus on the people that are real opportunities.

Makes sense. And it will make logical sense to everybody listening, at least it should. Now, whether or not it makes emotional sense is a different thing, right? Because especially if you're starting up a business and you want investors, you understand that in a lot of cases, the, the investment money is the lifeblood of the business. If you don't get that investment money, you can't just go into the bank account, pull out 13 cents and hope for the best. Probably won't work out that well. Right? And so you need the investment money, but at the same time, you cannot seem needy in the process. And so where do you get the confidence to. To still be able to be willing to let people go and make it almost seem as though they're not as important as they really are, to create that dynamic? How do you convey that confidently without the, that emotional pressure coming and pulling you down?

I try to do it in writing because I, you know, it would be really hard for me to look you in the eyes and be like, I don't need your money. But I could write because it's not true. I do need your money. This business will not work if I don't have your money. But in an email, it's really easy for me to write that and keep it really short. Right. I try to put myself in the mind of, what would I be doing right now if someone told me, If I had 10 investors tell me, we want you to come in next week so that we can give you money? Well, I would email all the other people and say, hey, things are moving so quickly. I, I'm not, you know, if I, if I had even more audacity, I would say, hey, we don't actually, we should just cancel these meetings. We've got stuff moving so quickly. I was like, you know, I didn't have enough courage to write that email, but I did have enough courage to write the email that said, look, things are moving really quickly. If you're not interested, that's fine. You know, like, we have other options. I don't know where it comes from other than having been on the other side of the table and just understanding how the decisions are getting made. Right? It would be interesting if you were looking for a job and a career in a space. Go talk to the hiring manager at four companies that you don't care about and understand how they make decisions. And I can assure you, having been on the other side of the table, that when candidates are email you and say, hey, I have another offer, could we move this interview up? People are like, oh my gosh, someone wants to hire this person, they must be amazing. We've got to move this up. People trust other people's in, you know, input, even if they don't know them. So, you know, when you go to, here's a great example. If you've ever been to like a grocery store and you've looked and it's, ah, there's like seven salsas, but this one salsa seems to have two, two jars left and all the other ones are fully stocked. People must really like this one. I'm going to get that one. It's like you walk by restaurants, you want to go to the restaurant that other people are eating at. You walk in the door and there's one person in the whole restaurant. You're like, I think this is a mistake. We shouldn't eat here. And so that scarcity mindset of, of if other people want this, it must be good. You need to create that in other people's minds when you're trying to negotiate with them for anything, make them think that you have options. Because that's, that's how it works, right? You're, you're, you're negotiating leverage is that you have a better option. You can create illusions may be the wrong word because hopefully it's like somewhat true. But you can create the sense that there are more options and make it clear that even if they're not done right. If I had another investor saying, here is an investment, I would have said, hey, things are moving quickly. We have a term sheet from another investor, so totally fine to turn this off, but that community is small enough that the last thing you want is for someone to find out that you were lying. And so I'm sure there are investors out there who do this right. There are movies that get made about entrepreneurs that take bold moves. I never felt like it was worth Taking that risk. But I was like, how do I write something that is as close to that as possible that is not a lie? So, you know, we have. I would say we're starting to meet with partnership. We're taking partnership meetings next week. So if you're interested, we need to move quickly. If not, it's fine. That was true. We were taking meetings with partners. But I didn't say we have three term sheets. Right. I didn't say we're at that stage. I could say we're expecting to have some term sheets next week. Like, we're at the point that investors are offering us term sheets, but I didn't get that far.

Yeah. Oh, man. Chris, this is great. This is really helpful. And for the people out here who are negotiating, let's say, whether it's in the fundraising kind of space case or just in general, when it comes down to all of the wisdom that you've gleaned as you've collected all of the hacks, shout out to your podcast, all of the hacks. As you've collected all of these great negotiation hacks, what would you say is the one thing that is the most important thing that people do when they're negotiating effectively?

Well, this is. This feels like a trick question because I feel like I asked you this question and you told me I have to listen more. And so. So now I feel like, how could I answer it without that? But. But assuming you've been listening to this podcast and you've learned to negotiate anything for. For, you know, dozens of episodes, you already know you should be listening. So I would say the most important thing for people to take away when it comes to negotiating, from my perspective, is to understand the process that's happening and try to play to that process. So if you know that people are trying to get things done quickly and don't want to miss out, well, then try to get as many options on the table as possible in as short. As much as in as short a period of time so that you can play to that dynamic. If you're working with a company that, you know really wants to take their time, that won't work. But if you figure out how the game is played when it comes to deals getting done and in fundraising, the game is not losing. There are investors out there who have a mandate internally at their firms to say only investing companies that have another term sheet on the table, like, it's great. You don't even have to due diligence. It's like if one of these seven investors is willing to invest, we'll do the deal. And so your job is actually just getting the founder to say yes versus there are other funds that are like, we only invest if we're the first check. So you got to figure out who you're trying to get, you know, to say yes and play that game. Don't. Don't play the game that you think will work. Play the game after you do the research that you know will work.

Thank you so much for joining us, my friend. Really appreciate it. And before you go, can you let the listeners know how they can get in touch with you and how they can learn more about what it is that you do?

Yeah, I mean, if you're listening to this podcast, you're already in a podcast app, so you could just search for all the hacks. That's our show. Or if you're online, it's allthehacks.com there's tons of episodes on everything from, you know, negotiating, which you guys know, but also travel hacks and getting a deal on a car. Productivity, family side hustles, all kinds of good stuff, investing and more. So check it out and if you want to, reach out to me and let me know what you think. Definitely. I'm Hutchins on Twitter, Chris@AllTheHacks.com Would love to hear from you.

Awesome. Thanks, Chris. Really appreciate it.

Yeah, thanks for having me.

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