In the venture capital arena, there are many different negotiating styles and techniques.
One style is focused on negotiations as a “zero/sum game,” or “us vs. them.” There are only winners and losers as each negotiation point is addressed. More common these days are “win/win” negotiators. But when the topic of controversy is managing a risk such as being sued by a third party or limiting liabilities how can one really understand the proper solution as a form of “win/win?”
Think of negotiations as a “rock/paper/scissors” game. A “zero/sum” negotiator may find success against a “win/win”-focused opponent but may find less success when opposite another "zero/sum" negotiator. A technique may work well against one kind of opposition style and poorly against another. How can one gain the upper hand?
One way to win at this “rock/paper/scissors” is by using a third negotiation style emphasizing fairness.
A fairness negotiator must be knowledgeable. Which party is the best cost-avoider? Who can more easily avoid the risk? What is a party’s downside in relation to its upside? If the negotiator has answers to these questions, he or she can serve as an authority figure to all parties.
In contrast, failure in negotiations often results from negotiators being unprepared and from lacking knowledge of the business and legal aspects of the point in controversy. Ignorance is hard to hide. An adversarial party can perceive the ignorance of its own counsel even at an out-of-town meeting or during a conference call. If applied correctly, the fairness method can be so successful that the business people associated with the one party will begin asking questions directly of the other party’s better-informed attorney.
A fairness negotiator excels in bridge building. So often one side wants “x” and the other side wants “z,” but the “y” solution in the middle has yet to occur to either of them. In such cases, the fairness negotiator can offer the unseen solution. When this is done, the other party’s principals will often immediately agree to that solution, without even taking the time to discuss any negative considerations with their attorney. In other words, by proposing a compromise solution, the fairness negotiator often gains the ability to persuade the other party's business persons, relegating the attorney for the other party to serve as the role of spectator. There is also an advantage to be had: the fairness negotiator, by being first to offer compromise, can choose the specific compromise that best serves his or her client.
A fairness negotiator knows how the problem is usually resolved. Fairness negotiators should not only to persuade the other party of the merits of the client’s position and to propose workable solutions to problems that may arise, but also advise both sides on what is customary. A fairness negotiator’s role is to achieve a signed agreement that protects the company against risks or burdens that are unfair or not customary. In this regard, there simply is no substitute for experience.
A fairness negotiator needs to listen. Where there appears to be a great divide between the parties, it is usually a result of a failure to communicate listen. One can only find compromise and protect against unreasonable risk if one determines – through listening – what the client and the opposing party needs from the deal.
In most private equity/venture capital investment or commercial transactions, arguing for fairness simply works. These transactions include each side sharing the upsides and downsides of the deal. The reason for this is that both sides want to do the deal and have similar objectives. Both the VC and the entrepreneur want the company to be successful. Also, the two parties need to work together in the future, so compromise and fair play are a necessity.
Broberg is a partner in the Del Mar Heights office of Allen Matkins Leck Gamble Mallory & Natsis LLP and is chair of the firm's Technology & Intellectual Property Practice Group. He can be reached at email@example.com>