Negotiating a Strategic Business Partnership (The negotiation score sheet and contract)
Note: values were adjusted on the paper copy*
Scenario: You are part of a three-way negotiation
involving a tech startup, an investor, and a corporate partner. Your goal is to
reach an agreement that maximizes your individual interests while ensuring the
deal is acceptable to all parties. The negotiation covers eight key issues:
- Equity
stake
- Investment
amount
- Board
representation
- Intellectual
property rights
- Revenue-sharing
model
- Product
launch timeline
- Geographic
expansion strategy
- Exit
strategy
Each party has a different valuation for each issue,
presented in the form of ‘points’ on the attached position sheets. Your
objective is to maximize your points while reaching an agreement within the
given time.
If no agreement is reached, this will be indicated in the
final contract.
Tech Startup's Position Sheet
Issue |
Option |
Points |
Equity Stake |
5% |
200 |
10% |
150 |
|
15% |
100 |
|
20% |
50 |
|
Investment Amount |
$1M |
50 |
$2M |
100 |
|
$3M |
150 |
|
$4M |
200 |
|
Board Representation |
1 seat |
50 |
2 seats |
100 |
|
3 seats |
150 |
|
4 seats |
200 |
|
Intellectual Property Rights |
Retain full rights |
200 |
Shared rights |
100 |
|
Full transfer |
0 |
|
Revenue-Sharing |
5% |
200 |
10% |
150 |
|
15% |
100 |
|
20% |
50 |
|
Product Launch |
6 months |
50 |
12 months |
100 |
|
18 months |
150 |
|
24 months |
200 |
|
Expansion Strategy |
Domestic only |
50 |
North America |
100 |
|
Europe & Asia |
150 |
|
Global |
200 |
|
Exit Strategy |
IPO |
200 |
Acquisition |
150 |
|
Buyout |
100 |
|
No exit plan |
50 |
Investor's Position Sheet
Issue |
Option |
Points |
Equity Stake |
5% |
50 |
10% |
100 |
|
15% |
150 |
|
20% |
200 |
|
Investment Amount |
$1M |
200 |
$2M |
150 |
|
$3M |
100 |
|
$4M |
50 |
|
Board Representation |
1 seat |
200 |
2 seats |
150 |
|
3 seats |
100 |
|
4 seats |
50 |
|
Intellectual Property Rights |
Retain full rights |
0 |
Shared rights |
100 |
|
Full transfer |
200 |
|
Revenue-Sharing |
5% |
50 |
10% |
100 |
|
15% |
150 |
|
20% |
200 |
|
Product Launch |
6 months |
200 |
12 months |
150 |
|
18 months |
100 |
|
24 months |
50 |
|
Expansion Strategy |
Domestic only |
50 |
North America |
100 |
|
Europe & Asia |
150 |
|
Global |
200 |
|
Exit Strategy |
IPO |
50 |
Acquisition |
100 |
|
Buyout |
150 |
|
No exit plan |
200 |
Corporate Partner's Position Sheet
Issue |
Option |
Points |
Equity Stake |
5% |
100 |
10% |
150 |
|
15% |
200 |
|
20% |
50 |
|
Investment Amount |
$1M |
50 |
$2M |
100 |
|
$3M |
150 |
|
$4M |
200 |
|
Board Representation |
1 seat |
50 |
2 seats |
100 |
|
3 seats |
150 |
|
4 seats |
200 |
|
Intellectual Property Rights |
Retain full rights |
200 |
Shared rights |
100 |
|
Full transfer |
0 |
|
Revenue-Sharing |
5% |
200 |
10% |
150 |
|
15% |
100 |
|
20% |
50 |
|
Product Launch |
6 months |
50 |
12 months |
100 |
|
18 months |
150 |
|
24 months |
200 |
|
Expansion Strategy |
Domestic only |
200 |
North America |
150 |
|
Europe & Asia |
100 |
|
Global |
50 |
|
Exit Strategy |
IPO |
100 |
Acquisition |
200 |
|
Buyout |
150 |
|
No exit plan |
50 |
Contract Agreement
We, the undersigned, have agreed/not agreed to a contract
(delete as applicable).
Tech Startup Representative: ________________________
Investor Representative: ________________________
Corporate Partner Representative:
________________________
Agreed Terms:
- Equity
Stake: ____________
- Investment
Amount: ____________
- Board
Representation: ____________
- Intellectual
Property Rights: ____________
- Revenue-Sharing:
____________
- Product
Launch Timeline: ____________
- Expansion
Strategy: ____________
- Exit
Strategy: ____________
Points Earned by Tech Startup: ______________
Points Earned by Investor: _____________
Points Earned by Corporate Partner: ______________
Negotiation briefs
Investor’s
Brief:
You are a successful investor
with multiple opportunities on the table. This startup is just one option, and
you are only interested if the deal is highly favorable to you. You know
startups need funding more than investors need deals, so you will push for
maximum equity, a strong revenue share, and board control.
You have no interest in charity—this is about return on investment. Intellectual property rights are key; owning them could mean future profits beyond just this startup. You prefer a fast product launch to start generating returns immediately. If the terms don’t serve your financial interests, walking away is always an option.
Tech
Startup’s Brief:
You’ve built something innovative, and this deal could take your company to the next level. You need investment and a strategic partner, but you must also protect your company’s future.
Corporate
Partner’s Brief:
Your company sees this startup
as a long-term asset, not just a quick investment. You are here to secure a
stable and profitable partnership that benefits your business for years to
come. Control is key—board representation and influence over major decisions
will ensure this deal works in your favor.
Unlike the investor, you don’t
need immediate returns. A steady, well-planned product launch and a controlled
expansion strategy are more important than rushing into global markets. An
eventual acquisition would be ideal, allowing your company to fully integrate
the startup’s technology and expertise over time.
Audio File https://drive.google.com/file/d/1vhS-EysbIhEuhCOaNtsmLxId34w_g9gO/view
Negotiation breakdown
1. First Offer and Anchoring (0:30 - 1:00)
- Quote: "Who would like to make an offer? 15%."
- Analysis: This is an example of making the first offer, which acts as an anchor in negotiations. Research suggests that first offers significantly influence final agreements, as counteroffers typically shift toward the initial number.
2. Counteroffers and Concessions (1:10 - 2:00)
- Quote: "I'll be honest. 15 is probably too high for me... I can do middleware and I can go 10. But I'm not going five."
- Analysis: The response demonstrates a counteroffer strategy. Effective counteroffers are close to the reservation price of the opposing party. Additionally, the use of concessions here aligns with the shrinking pairs principle, where each successive concession is smaller than the previous one.
3. Zone of Possible Agreement (ZOPA) (3:00 - 4:00)
- Quote: "3 million for 10%? I would say that probably two million. 2 million, 10%. Three for 15?"
- Analysis: The discussion here is about the ZOPA (Zone of Possible Agreement), which is the range where both parties' reservation prices overlap. The negotiators are trying to identify this range by adjusting investment and equity percentages.
4. Integrative Negotiation (5:00 - 6:30)
- Quote: "Board representation. I guess, is the next one... We'd like to be quite involved."
- Analysis: Instead of solely focusing on financial terms, they introduce board representation, moving beyond a distributive negotiation (where parties argue over a fixed sum) to an integrative negotiation, where multiple issues are considered together.
5. BATNA Consideration (7:00 - 8:00)
- Quote: "I'm definitely not happy to give that. 3 million for 10%? I would say that probably two million."
- Analysis: The speaker is demonstrating knowledge of their BATNA (Best Alternative to a Negotiated Agreement) by refusing offers that do not meet their minimum acceptable terms. A strong BATNA provides leverage in negotiations.
6. Package Deals and Logrolling (9:00 - 10:00)
- Quote: "If we go for four seats on board representation, then we can agree on revenue share."
- Analysis: This is an example of logrolling, where negotiators make trade-offs by prioritizing different issues. By offering board representation in exchange for revenue share, they increase the likelihood of a mutually beneficial agreement.
7. Exit Strategies and Long-Term Planning (11:00 - 12:00)
- Quote: "Should we go public or look at acquisition?"
- Analysis: Discussing an exit strategy is a long-term negotiation approach. This aligns with the principle of expanding the pie, ensuring that both parties consider future gains rather than just immediate benefits
Contract agreement (negotiation exercise)
Tech
startup representative: Jack
Investor
Representative: Rob
Corporate
Partner Representative: Ashley
Agreed
terms:
Equity
stake: Option C
Investment
amount: Option C
Board
representation: Option D
Intellectual
property rights: Option C
Revenue
sharing: Option C
Product
launch timeline: Option D
Expansion
strategy: Option D
Exit
strategy: Option C
Points
earned
Tech
startup: 1150
Investor:
1100
Corporate
partner: 1250