Negotiations between entrepreneurs and investors is a delicate and complex matter. In most cases, one or both sides fail to see the good of the startup as top priority. Instead, they focus on maximizing their personal gain and on asking petty questions like “what do I get out of it” or how to avoid being a sucker.
We see this attitude in entrepreneurs who attempt to embellish their accomplishments and inflate company valuation in an attempt to score higher investments. With investors, It’s usually trying to get as much equity as they can for as little money as possible. In each case, neither side is approaching the negotiating table intending to do what’s right for the startup, and in effect impeding its success.
With this kind of attitude it’s no wonder that 95% of all startups fail. Looking at the rare 5% that do manage to beat the statistics, we see entrepreneurs and investors who approach the issue very differently. And as always, there’s quite a lot we can learn about the subject from history’s most successful entrepreneur, Abraham.
This week’s parasha tells us that upon the death of his Sarah, his wife, Abraham turns to the sons of Heth looking to purchase a burial ground for her. The sons of Heth offer Abraham any plot his heart desires completely free of cash. Abraham refuses the generous offer and requests to speak with Ephron the Hittite. He then insists on paying full price for what will later be known as the Cave of the Patriarchs. Ephron returns with an offer which the traditional biblical interpreters have long considered outrageous:
 My lord, listen to me; a piece of land worth four hundred shekels of silver, what is it between me and you bury your dead:
Abraham doesn’t waste one minute arguing and pays Ephron the full amount on the spot.
 And Abraham listened to Ephron, and Abraham weighed out to Ephron the silver that he had named in the hearing of the sons of Heth, four hundred shekels of silver, accepted by the merchant.
Let’s take a moment to consider what just happened here. Not only that Abraham turns down free land, but he ends up paying many times over the market price. Imagine a situation where an entrepreneur offers an investor a certain share of his company for free, the investor turns the offer down, sets a very high valuation on the company, and then invests at full price.
True, the Cave of the Patriarchs is not your standard plot of land. It has two openings and was purchased directly from Ephron the Hittite, who was of the town elders. And still, the question of whether Abraham turned out to be a sucker sneaks in.
If you ask me, not only that Abraham was no sucker but his negotiation with Ephron was so brilliant it could easily serve as a case study in business schools. To understand why, let’s play a little game of what if.
What if Abraham had accepted the original offer for free burial ground? Surely, he and his offspring would forever have remained as guests on the land of the sons of Heth. The locals, which had up until then treated Abraham as the “Prince of God” would from that point onward consider him inferior to them vis-à-vis land ownership. Abraham would not have managed to upgrade his socio-economic status and become an equal resident. And as a result of all this, the chances of success of Abraham’s startup would be harmed.
Now what if Abraham had refused the free offer, but had bargained over the cost? Likely he would have succeeded in negotiating a lower price, but as the years went by the sons of Heth would inevitably start to notice that Abraham’s startup was growing to eye-popping proportions. Neighborly relationships would be thrown into discord, the sons of Heth would grow resentful and accuse the so-called “Prince of God” for acting dishonorably and inconspicuously during negotiations. All of which would equally harm the chances of the startup’s success.
In light of the possibilities available to him, Abraham decided to pay the supposedly outrageous price set by Ephron. But was the price actually outrageous? Certainly it was no small cash, but given the importance of the Cave of the Ancestors to Abrham’s venture, it certainly was not too steep, either. Four hundred shekels of silver was the exact price needed to ensure that Abraham and the sons of Heth would be able to uphold the contract in the best way possible. Abraham was wise enough to understand that this sum would buy his recognition as an equal citizen and would maintain his honor as the Prince of God. The substantial sum would also ensure that the sons of Heth do not feel cheated. And above all, it is a sum that would buy freedom for Abraham’s dinesty and would allow his descendents to return to the Cave of the Ancestors whenever necessary; as indeed happened with Yosef when he came up from Egypt to bury his father, Jacob.
The case of Abraham and Ephron’s negotiations is a stark reminder that the highest purpose of any negotiation is to ensure the contract would be upheld in the most optimal way. When either of the negotiating parties is busy improving their own terms, they necessarily lose focus from what really matters. It follows that he who has the good of the contract at heart would look after the interests of the other party as passionately as they would their own.
When entrepreneurs approach me with an outrageous ask at an unrealistic valuation, the very proposition hurts their chances. In doing so they are waving countless warning signs at me: that they are immodest, disconnected from reality, inexperienced, and above all that their key focus is not the good of the startup but rather their own personal interest. And if at this critical point they’re not thinking about what’s best for the company then the word “failure” is tattooed on their forehead like the mark of Cain. And vice versa. When an entrepreneur offers up a huge chunk of their company at too low a valuation, it eqaully hurts their chances of success. If an investor accepts the offer, the entrepreneur would be left with not enough equity, which could deter future investors from coming in on the next round or hurt the entrepreneur’s motivation to continue leading the company down the road. In either case, the good of the company is not a top priority.
As one who painfully witnesses the staggering number of failing startups, I consider startup success a kind of miracle. When it does happen, it is a testimony to a group of people who managed to rise above the petty questions of “what do I get out of it” and focus on the good of the company. That was Abraham’s way, showing magnanimity and staying clear of petty self-serving concerns, thus keeping his vision fresh and doing whatever it takes to make it a reality. May it be so that the number of entrepreneurs with Abraham’s DNA running in their blood would multiply as the stars of heaven, and as the sand that is by the seashore.