A frequent metaphor I use in customer acquisition, fundraising, or any kind of deal making is that you as the founder and promoter should present the finished meal on the dining table and not drag your counterparts into the kitchen. The decision is yours as to how you package up your offering in a way that matches your goals.
If you have a sales model that involves relationship selling to high-level decision makers, you can be sure they would prefer a detailed proposal from you with a request to “sign here.” Certainly there’s some preparatory questioning and analysis and some basic trust building, but you run the risk of losing a deal if you keep having conversations and are tardy in getting to a very specific ask. You should assume your target has substitutes for your product, has an overflowing inbox, and is being wooed by others. He or she doesn’t care about exactly how your internal mechanisms work; the interest is entirely in what you are proposing to deliver and what are the pricing particulars and quantifiable benefits. Your prospect is not likely to take the time to collaborate with you in reaching that stage. If you have done the proper job in questioning and listening, you’ll have already been told exactly what will trigger a buy. Most customers will sell themselves if you just give them half a chance.
One method to go from talking to doing is to propose an initial engagement that is a partial step but does accomplish the mission of getting the customer focusing on you to the exclusion of your competitors. That may be a pilot project, a discovery phase of consulting, a geographically constrained roll-out, or some other easily digestible starting point. The more mature and visual your product, and the better your customer reference base, the less need there is to propose a baby step. But, if you are confident you can deliver on the promises you are making and don’t feel that you yet have the clout to ask for the mega deal, you may decide that your best avenue is the more constrained start that at least gets you in the door.
Fundraising has its own particulars with respect to packaging. Let’s talk first about an angel round to individual investors, all of whom may be duly accredited but many of whom may have no background that enables them to understand fully your idea and your business model. You will do your best presentation, keeping it concise and clear, but it’s imperative to get to a specific ask along with the companion reward that you are promising. A price of $2 per share means nothing in itself. Ownership of 1.222% means nothing. Is third-year revenue of $10M good or bad? Those are all kitchen items that you might show in the fine print of a chart, but don’t bring items like those into the main course of your pitch. What does mean something to a potential investor is a chart that shows if you make your plan, in five years you will return $10 for every $1 invested. You’ve got convincing assumptions to back that up, you have credibility in your chosen domain, and the investor knows you well enough to trust that you’ll do your best. Never make a potential investor get out a calculator to figure out what you are offering. Angels, even if they are not recurring players, will see other deals. If, for example, they know real estate, they’ll have a stack of opportunities they can easily comprehend. Those are investments they can easily add to their portfolios. If, however, you bring them a technology deal that is outside their comfort zone, they literally need it handed to them on a platter.
As to institutional VC’s or PE investors, many of the same general rules apply. In that case, you are not making a specific offer; you are soliciting a terms sheet. Those investors will have terms sheets at the ready, and most of them will have some pesky MBA’s who will grind through all your assumptions, models, and market data. But, they expect to be analyzing a finished product from you and not creating your business plan for you. You’ll need to be prepared for much more thorough due diligence than with angels, up to and including a colonoscopy. All of them that are in the class you prefer will have plenty of competing deals. They’ll favor the ones where there has been advance work connecting the dots and creating some personal rapport. VC partners are in the business of deploying money, and, within the boundaries of their capital, in chunks as large as possible. Large deals take the same management time and attention as smaller ones and are a better use of partner resources. If you have something at the stage to command attention of a professional investor, serve up a seven-course meal with all the trimmings. They are not snackers. Decide to think big and ask big.
You can’t quite do a trial run to drag a skittish investor across the line. There’s no baby step analogy to the pilots discussed above for a sales situation. However, it’s not uncommon to de-risk an angel investment by requiring a certain minimum amount to be subscribed before escrow is broken and you have access to the cash. There’s considerable comfort for everybody when their money is surrounded by other money from similar individuals and all can count on enough in the bank to enable you to get your plan rolling as intended. You can’t execute any plan very well if you are busy trying to raise next week’s payroll. The professional investors have a number of common devices to address this question. Very often an investment will be staged, with subsequent tranches being tied to reaching documented milestones. Those milestones may be revenue, profit, product release, signed partner agreements, key hires, or any other steps that show a venture is achieving liftoff and is ready to scale. You as a founder should not initiate that discussion; you’d clearly like to get all the capital up front and not have to worry about renegotiating if, say, you slightly miss one of the intermediate gates. But, if that is part of the terms sheet that comes your way, you can then decide if you want to fight it, try to soften it, or just go along. Frankly, you won’t have much, if any, negotiating leverage if you get to that point. The fundamental concepts of de-risking are in the toolkits of all smart investors.
You may find yourself in other types of deal negotiations that follow similar patterns. Say you have a lot in common with a strategic partner of similar size, and you get the idea of combining into one company on theories like having more integrated products, having a more attractive sales proposition, combining core technologies, making yourself prettier for investment or exit, creating more career upside for your employees, or just gaining more day-to-day predictability through mass and diversification across complementary sales cycles. Each of the parties to such a discussion will have a shoot-the-moon spreadsheet and will probably have a typical startup history with less than perfect records and some administrative cleanup. The social issues as to how the teams blend will drive 90% of the discussion. But, as with the other situations covered in this essay, the more focus there is on the outward facing aspects, the better the odds of getting a deal done. Back to my running analogy here, you need to decide if your dishes are truly complementary when served together at the dining table. If a combination only modifies the kitchen prep, chances are that you aren’t going to reap a big gain from all the trouble you’ll suffer trying to make a deal happen. Blending startups can work very well, but the motivations can’t be like Fortune 1000 mergers where the payoffs are often in the layoffs.
If you’ve gotten pretty far into a deal discussion, chances are you’ve already done some business together that has spawned the idea that you have a force multiplying opportunity. That was your pilot, or your trial run. You found out if your respective teams could get along with each other and make each other better. You got some feedback from the market or investors that was favorable. You reached a conclusion that this ought to be better for you personally as a founder even though you will suffer some dilution of ownership and authority. You’ve taken the baby steps. At some point, you must decide to move from that tentative romance to the much tougher question of whether to marry. If one of these deals works, you may have others you will want to consider, but you should be wary of trying multiple combinations in one swoop unless you have major funding already in the bank for such a purpose. There’s too much emotion involved, and you don’t want to start off on the wrong foot by playing one off against another. In other words, I would decide to try this type of strategic growth in serial rather than parallel until I’ve perfected the process and have achieved enough scale to do these more with math than bravado. At scale you will have the option of attracting investors who will be more than eager to support the bigger and more thoroughly polished opportunities you can bring them.
In summary, in whatever transactions you are considering, you have far more sway over the ask if you bring it to the table fully baked and delightfully presented.