Maybe you have heard this advice before from a relationship perspective. I have seen quotes that tell you to walk away from a relation when needed. Here I’m trying to talk the same principle from a business sense.
It is tough to walk away from a deal, whether it it sales or investment or discount or whatever it may be. You might have tried hard to reach to wherever you are at. The deal might mean so much to you and it might be as important for your present as you think about it. Whatever be the case, if the deal in front of you isn’t right, have the balls to walk away.
When I was trying to raise my round for Profoundis, I was getting so many Nos. I was getting into 4–5 calls a day and getting all sorts of positive ‘feedback’, but not the money. Finally, I got my first couple of YESs; I needed to raise some more. I reached out to an investor who is well known in Silicon Valley and other places. He was interested but was unwilling to come on board since he thought his profile was different (better). This was true and I was willing to give a discount for the value from the investor. But then, he asked for a ridiculous discount. If I had agreed to that, then:
- I would make my committed investors look like idiots.
- I would undersell my company.
- I would give in to someone who is NOT being fair at least from my perspective. (In all honesty, I don’t think he was bullying. He believed it was fair. I still think he is a nice person).
On the flip side:
Related Article: How to Talk About Valuation When a VC Asks
- I would close my round (it is a BIG deal). I have been struggling to raise money for 5 months now with truckloads of No.
- I would get a good name on my investor list and value he brings in. It would also make it easy for me raise future rounds.
What did I do? I politely turned down the offer and walked away from the deal because I felt that is the right thing to do.
There are other investors whom I spoke who wasn’t willing to agree to the valuation. I was like — ‘I’m not underselling just because I’m in India and not in Silicon Valley.’ They knew when to walk away and so did I.
Note: I still managed to close the round with the kind of money I was looking for 🙂
In many cases, the deal and saying NO to it is an emotional decision. It is tough. You have pros and cons. You will have external pressure for one or even both sides.
Right Versus Wrong
The two parties coming into a deal will have their perspectives on what is right and what is wrong (what is success and what is not). Both sides may be fair from their perspective. Understand the other sides’ motivation, but don’t just give in.
Towards the end of one of my investment negotiations with a potential investor, I presented the scale up and growth plans. Just while I was expecting a Yes, he asked me — ’If you don’t reach the valuation you are presenting, will you give me more equity?’ to which I replied — ‘If I hit more than my presentation, will you give back my equity?’. The investor laughed and I smiled and our negotiation was done. He decided to invest.
I can keep writing a few more stories from my little experience where I held my fort well and didn’t do a bad deal. There are cases where we said No to new hires when they were asking for more than what we think they deserved (wrote a bit about it here). There are cases where we told our prospect that we will not be able to serve them since it wasn’t our offering they were looking for. So, in almost everything that we did, we always made sure that we walk away from the wrong deals.
Another important point that supports walking away from bad deals is — when you accept a bad deal, you are giving the other person incentive to repeat it.
This means the bad investor will screw up the next startup too, this means more employees will ask for ridiculous packages. So without knowing, you will end up screwing others. Do you want to be part of it?
Don’t Do Things Which Will Screw Others Up
We have been very careful NEVER to set the wrong precedent.
This note is a reminder so that we actively think about this and make sure we make the tough, yet right decision. To my friends who are taking the difficult ones, you are doing well. All the best!
[This post by Arjun R Pillai first appeared on Medium and has been reproduced with permission.]