Jen Berrent & Daniel Doktori worked together at WilmerHale where Jen hired Daniel as an associate. The goal was to build an emerging companies practice in New York City. One day, a couple of guys named Kiran and Greg approached to see if there was any interest in buying lunch for a group of seven or so general counsels of tech companies. So was born the first-ever TechGC event. Shortly thereafter, Jen left WilmerHale to become the General Counsel of WeWork, and a couple years later Daniel left to become the General Counsel of Credly. In the time since, Jen and Daniel have remained close and talked through the gamut of topics of building a life and career as a general counsel.

On Negotiating: Logic, Leverage, & Deal Momentum

Daniel: In one of our previous conversations, you mentioned earlier that you loved negotiating, and that negotiating leases for buildings was one way in which you manifested a break in your career – by operationalizing that negotiation process. One thing we shared in common (albeit at different scales) was the need to negotiate frequently with “Bigco.” Our organizations frequently negotiated with so-called “enterprise” customers, partners  and vendors who were significantly larger than our scaling organizations (especially early on). These organizations arrive at negotiations armed with standard operating procedures and inequitable legal forms and open with “take it or leave it.” Negotiating contracts is where legal and business strategy either partner or collide as choices about contracting impact deal velocity and long-term sustainability. What are some of your negotiation mantras? (and I bet I can guess the first: prepare!

Jen: Yes, preparation is key…but that goes for everything. Soon after I became a partner, we had a meeting to discuss an associate candidate. I wanted to be persuasive but I did not prepare for the meeting. I figured it was a low stakes meeting – friendly and not a ton on the line. Afterwards, one of the more senior partners – who happened to give great advice frequently – took me aside to let me know I needed to prepare for meetings. He said that there is rarely a meeting where he does not have talking points – even just a recruiting discussion. I have kept that practice for many years now. It has served me incredibly well. First of all, I can seem poised and confident even in ordinary course meetings. Perhaps even more importantly, by preparing for the low stakes meetings, I know how to prepare for the high stakes meetings. Being able to practice a skill like preparation is incredibly useful. In preparing for negotiations, I approach the full set of issues and work with the business team so that I know, for every possible point, which are important to us and which are not. I also think through trade offs – including in points that may seem to be only tangentially related.

For meetings that are negotiations, my mantra is: “leverage plus logic.” At Wilmer, we represented a lot of underdog companies – startups that had done well enough to survive to sell the company but not well enough to be a hot deal. To represent your client well in those deals, I really needed to understand how to get the points that we needed but not overplay our hand. This piece was so critical to me that I actually hired a professor from NYU to coach me on this and help me to refine my approach. 

Daniel: That’s cool. Coaching seems like an impactful option that’s so easily overlooked. No matter how good you are, an objective, informed outsider can make you better. I’m reminded of stories of how LeBron James reportedly invests $1.5 million per year maintaining his body. I spend considerably less maintaining mine….Anyway, so what did you learn from this coach and from your experience? 

Jen: One key thing I learned is that in a transaction, it is important to understand that your position does not exist in a vacuum – in some cases you have more leverage and in some places you have less. You need to understand the deal dynamics – not just what motivates you but what motivates the other side and what alternatives the other side has. In the leverage plus logic framing, the logic is why you are asking for a point. Typically saying something is “market” is not that compelling (unless you have all the leverage). Even more importantly, you are not persuasive. This does not necessarily need to be a long explanation: You can say we have a policy and we cannot change that provision for you but it is more compelling to explain why the policy is in place. As deals get more complicated, for a good lawyer to be a great lawyer, they need to understand every word in a document, how it relates to the rest of the document and why it is included (and, conversely, why a corollary point is not included). I have found spending time explaining the logic behind positions is quite persuasive. And if it’s not entirely persuasive, it can lead to compromise. And this back-and-forth happens in the context of leverage. If a company like Amazon is buying something from you and there are multiple other suppliers, leverage is so far weighted to their side, I would have an extremely small set of points I would even raise in the first place – for example, points that would put an undue legal risk on a company or create an unachievable operational standard so that the company really could not perform. I know you will have a more academic perspective to this based on all of your negotiating teaching!

As deals get more complicated, for a good lawyer to be a great lawyer, they need to understand every word in a document, how it relates to the rest of the document and why it is included (and, conversely, why a corollary point is not included).

Daniel: Academic perspective stems from what works in practice. Seems like your “leverage plus logic” practice translates into “combining expertise with thoughtful preparation to yield a set tailored priorities that reflect the relative ability of either party to walk away. For me, your analysis recalls Melian dialogue, where the Athenians, having successfully laid siege to Melos, offer the vanquished Melian negotiators a choice between slavery or death. In response to Melian complaints of unfairness (“that’s not market!”), the Athenians respond famously, “right, as the world goes, is only in question between equal power, while the strong do what they can and the weak suffer what they must.” I always associate that quote with the term “leverage,” namely, the ability to force your counterparty to make a choice they don’t want to make by controlling the set of options available to them, while ensuring they don’t opt for their best alternative (or “BATNA”) which doesn’t require you at all.

Jen: Before we move on, could we pause for a moment on “BATNAs”? I’ve used that term frequently before, but not sure if I’ve done so correctly. 

Daniel: Sure. BATNA stands for “Best Alternative to a Negotiated Agreement.” The idea is that an “alternative” is an outcome that a negotiator can achieve without agreement from their negotiation counterparty. So, if I’m the seller and you’re the buyer and we’re having a negotiation over what you’ll pay for this thing I’m selling – then my BATNA could be something like “sell the widget to someone else” or “don’t sell the widget today,” or “trade the widget with the proprietor of the next stall over in exchange for a beautiful tea set.” It’s the Plan B that doesn’t require the person with whom you’re negotiating to agree to anything.

Jen: Ok. Got it. So based on that, then, BATNA is directly connected to your leverage in a given negotiation in that, if you don’t have a strong BATNA, you could be forced to take bad terms in the negotiation.

Daniel: That’s right – your BATNA is the cornerstone of your leverage. Often times, though, negotiators don’t spend much time considering their BATNA, and they end up taking a deal that is worse than walking away or trading with the next stall over because they’re so caught up in the desire to complete the negotiation no matter what. Some negotiation scholars call this “Nonrational Escalation of Commitment” which captures the concept that you feel somehow invested in getting the deal done, as compared to achieving the best outcome. This is particularly true as negotiators wear down emotionally and begin to mistake sunk costs for investments. The antidote to this escalation is a well-articulated BATNA. If folks prepare for their negotiations in a structured way (as it seems you’ve done throughout your career), it’s straightforward to define your BATNA. If you execute on that preparation with discipline, it’s straightforward to ensure that you never accept a deal with a value below your BATNA. But plenty of seemingly straightforward things don’t end up happening. This is one common reason why. 

Jen: Within this framing, it is very interesting to think of an M&A context. Acquirers – and and, in my view, especially founder-acquirers (meaning a startup company has become the big company but is still led by the founder) – are particularly at risk of losing sight of the importance of valuation. A successful founder has taken a glimmer of an idea and, against all odds, has built a successful company. That founder then sees a way to combine two things to make it better – they have a vision of how a piece of technology or a product or a team will amplify what they have already built. Once they have confidence in that vision, it is hard for them to put a risk adjustment on it (there is less than only a 50% probability that the merger will actually work to enhance value) and to establish an upper bounds for what makes a target a worthwhile investment. Facebook famously bought Instagram, a photo sharing company, for $1 billion which at the time seemed a huge price. Since, the acquisition has created multiples of that in value for the company. More recently, Meta acquired Kustomer, a CRM company, for $1 billion and less than a year later was disposed of for ¼ the value. Were there internal debates about the other CRM companies that Meta could buy? Was the original plan to buy Kustomer for $500 million and the price ballooned? Is Meta prone to making $1 billion bets because of past success? Deal momentum – what you’re calling escalation of commitments – is real – I’ve seen how the discipline gets lost as the momentum of the acquisition accelerates.

On the seller side, a clear, well-defined and explicitly articulated BATNA is especially important as deal timing drags. Companies may feel that they are stalled in their growth or ability to fundraise and accordingly turn towards an exit. As they look for a buyer, they could lose sight of the fact that they need an alternative until the deal is closed. This could cause a company to overspend, taking their eye off of their runway, or under-invest, failing to plan for a future without the buyer’s capital. Either could cause a panic sale that results in bad terms, especially for management who tends to get squeezed as price pressure increases.

Daniel: Those are great examples of the escalation of commitment concept. Quick interlude before we move on, though. Could you say more on why management gets squeezed as price pressure increases? 

Jen: Sure. In a startup company, typically management has options rather than stock. In cases where management has stock, the squeeze is less extreme. There is no fiduciary duty owed to option holders and plans typically allow for significant flexibility in how options are treated. Practically this means it is a piece of the puzzle that is easily manipulated to make the deal work. To exacerbate the impact of this, options have an exercise price and worse tax treatment than stock so the possible upside for management is less than for stockholders. The practical effect is management will frequently need to be incentivized in cash for ongoing work and the buyer may not care too much about compensating for past success.

Second, In my experience, management treatment frequently gets addressed towards the end of an M&A negotiation. So, although theoretically we are starting with a blank sheet of paper for everyone, in reality investors and founders have begun to anchor to value that they will get in a deal. This creates friction in terms of the investors “giving something up” in order to get management to where they should be. This is clear behavioral economics (“Loss Aversion”). I always advise companies to get all of the compensation terms in the term sheet because of this issue. 

Last, cynically, I think there is founder worship. Investors, buyers and founders themselves attribute 99% of the operational success to the founder and correspondingly little to the team. So I think there is an uphill battle to get compensation for the workers when there is less leverage in a deal.  

Daniel: Moving more into the term sheet is never the wrong answer. At the same time, the “we’ll figure it out down the line,” temptation is always strong, especially in the case of a situation where the management wants to sell and the market seems strong at the term sheet stage. It’s another flavor of deal momentum. 

Jen: That’s right, and that’s where the General Counsel can create value. In either case, as General Counsel, it is important to remind everyone of deal hazards – difficult integration, a buyer getting cold feet, diligence issues – while at the same time propose solutions. But you will lose your seat at the strategic table if you are just an issue spotter. You will have the floor if you can be creative in problem solving. For example, as price increases, do you revisit earnouts or other performance payments? As a buyer takes more time, do you set deadlines or payment penalties? Do you add back in break-up fees or ask for bridge financing to keep current spend levels? And this is where the negotiation strategy comes in. The more you can articulate your BATNA as a viable strategic alternative, the more valuable your advice gets.

Daniel: Right on. I’ve heard this articulated as you want to be a “yes, if” lawyer, not “no, because” lawyer. To be able to make that leap to proactive creativity, you need that set of information at your fingertips. The more we talk, the more I marvel at how much of your amazing career seems powered by the humble checklist. Could you say a bit more about how you prepare and what tools you use to navigate both the preparation and the actual negotiation? 

Jen: For a critical negotiation, I create a chart that shows the topic and term at issue, each side’s most recent position, the level of importance the issue is to us, our preferred and fallback positions, and tradeoffs we can make with other terms. I also always leave a blank column to invite input from the business client. I think this is an important aspect for lawyers – a tangible reminder that you are not making the decision independently and you need input. This is a relatively common approach for M&A type negotiations. The other aspect that I think is critical in negotiating is taking a long-term view – of a deal as relational and not transactional. This is very hard to remember. In the context of fundraising, it is important to remember that there will be another round so you can leave some points to the future or make progress towards an end-goal without getting all the way there. For a commercial contract or joint venture, building a relationship may allow you to improve terms down-the-road.

When I negotiate, I have a systematic approach to analyze all of the points at hand and I never think of one point alone – it is always a package of points. If we move a little in one direction on one topic, I need to have a strong sense of where I would move on a seemingly unrelated topic. This allows me to play the statistical game of foreseeing the future correctly much more frequently – because I am covering more scenarios.   I see the assessment of my negotiation playing out over years as a business deal unfolds in the real world.

Daniel: Superb stuff. Thank you. Some clear themes emerging here. Let’s summarize: 

  • Leverage & Logic: Leverage is a function of dynamics primarily outside of the control of the general counsel. But leverage is a crucial thing to understand as a negotiator because it creates the context in which logic is brought to bear by a negotiator. The “logic” stems from a combination of expertise and thoughtful preparation. That combination yields a tailored set of priorities for any given negotiation and the opportunity to create value.
  • BATNAs & Deal Momentum: BATNA is your best alternative to a negotiated agreement. Your BATNA is the best option that you can achieve without agreement from the group you’re negotiating with. Articulating (and socializing with your client and revisiting at key moments during the negotiation) your BATNA is one of the most impactful tactics a GC can employ in preparing for a negotiation. Doing so helps avoid getting swept along the currents of deal momentum towards an end that doesn’t make sense for your client. 
  • GCs & Value Creation: Lawyers get good by understanding every term in a deal and how those terms interact with each other. They become indispensable when they can actively propose tradeoffs between terms in dynamic situations. There is no substitution for thoughtful preparation. Effective preparation includes precise articulation of key terms, relative prioritization of those terms, options for each along with connections between key terms enabling tradeoffs and clawbacks as needed. It also includes explicit inputs for business partners. 

Jen & Daniel are Founding Members of TechGC, a private invitation community of over 4,000 GCs & CLOs (and their legal teams) of high-growth tech companies and venture funds. To request an invitation to join as a member, click here.