Negotiation

7 July

• Note that Delray's intention to expand is favorable for us
• By telling the other side why this is an interesting opportunity, we might have opened some doors; of course there's also the fear of giving the opposing side leverage
• You can't over-prepare; you can only under-prepare.
• How many variable are there, and how many materially different contracts do they yield: territory, price, exclusivity, duration, financing, quotas. A huge number.
• We know that these are the issues, so we should start with them all, even though it's not practical to crank out all possibilities. Just start off with something specific.
• Show what you're willing to do to get what you want; show what you have to get in order to play ball.
• You can protect yourself from running out of time by getting down to brass tacks earlier.

9 July

• For Exercise 12, I am Friedlich, negotiating against Packard (J Engel) and Lee (Malas); Hurley is the financing source (SVVCF).
• For #12. When forming a business:
  • Principals bring to the table
    • Ideas
    • Experience/knowledge
    • Money
  • Principals expect to receive
    • Short-term income
    • Long-term income
    • Control
  • Issues principals need to resolve
    • Decision-making arrangements
    • Distributing money from the business
    • Making changes when necessary or desirable
• This will complete Thursday 7/30 (including turn-in of dox)
• Creation of a business venture: Lee, Packard, Friedlich are the parties, and there's a venture capital fund
• Don't wait until late in the game to talk to the financing.
• The people who take the biggest risks tend to expect the greatest rewards. That will govern the things we need to negotiate. The risk/reward assessment has a lot to do with leverage, in the context of business formation. Not everyone is likely to agree about the magnitude of risk.
• There's always overlap about what people bring to the table, and what they want out of the deal.
• Note that there are different kinds of decisions: hiring, purchasing supplies, etc. You want to design a decision-making plan that allows some decisions to get made without consuling all the principles.
• This will be an LLC, not a corporation, but this is not a BusOrgs exercise: just negotiate about your interests.
• What do we do if a principal becomes incapacitated, or leaves, but still has rights/responsibilities? What if they just change their minds?
• Note that in a startup context, the source of capital will want some control, not just interest: the risk is too great. Or, if it's a loan, a security interest in the assets of the business.
• Equity financing is different than a loan: someone puts up the money, and takes a share of the ownership. There's no guarantee of repayment (like with a loan), but there's an entitlement to share in the success of the business. That could be in the form of preferential rights, etc. A common stock shareholder, by the way, is a kind of equity investor.
• Need to avoid holes, uncertainty. Make sure we don't run out of time, so that all issues can get addressed.
• 2 documents are required:
  • Memorandum of understanding between the three about the points negotiated; not an actual set of articles of organization
  • SVVC is responsible for writing a letter of commitment incorprating the terms that it has negotiated
• Those two documents are related, obviously.
• Make them clear and precise: the writing is important.