An Investor's Guide to Entrepreneurs

Entrepreneurs are great rationalizers. Sometimes a modest delusion or a great rationalization is the only way an entrepreneur will make it through the early days of his or her company. That's because in start-ups, ignorance and lack of experience can sometimes be a competitive advantage - not knowing what you can or can’t do opens up a far larger world of possibilities than settling for what’s clearly doable.

But in the context of negotiations, this tendency to rationalize plays out in very specific and somewhat peculiar ways.

An entrepreneur will often accept terms and conditions that are unrealistic just to get the deal done. Because entrepreneurs are eternal optimists, they don’t feel obliged to evaluate “either/or” equations. They think that they can eventually have it all, or at least recoup what they are giving up in the short term. When this doesn’t happen, you have one very unhappy camper.

Investors need to be careful that they never accept a commitment in words rather than in spirit. This is the same situation that all employers have when an employee asks for a raise and is turned down. You have to be sure that the employee didn’t quit without leaving.

Entrepreneurs hate to lose control of any situation. But the give-and-take that makes for successful negotiations is a back-and-forth process of concessions. This process can be viewed constructively or bitterly, depending on the entrepreneur. When a negotiation is too aggressive (even when the entrepreneur “agrees”), resentment is often the result. It’s always better for the parties to feel that both sides have left something on the table.
Finally, entrepreneurs are quick to feel victimized and taken advantage of. They fear getting screwed in a deal much more than any concern they may have about the business failing. Anger and paranoia are major emotional drivers, and they’re part of the personality of every successful entrepreneur. Investors need to make sure that ever-present underlying anger isn’t directed toward them.

One of the saddest things about even successful entrepreneurs is that even when the deal has gone well, they still feel “cheated” because they are convinced that they gave up too much at the start. For better or worse, good mental health has never been a prerequisite for entrepreneurial success.