Business and Commercial Dispute Negotiation Role-Play:

Aerospace InvestmentBalancing Venture and Relationship Capital

Nicholas Sabin
Two-party term sheet negotiation between a venture capitalist and the founder of an aerospace start-up company in which participants are scored both on their substantive performance and on the other party's perception of the relationship

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OVERVIEW:

This is a two-person scored negotiation simulation involving a venture capital investment. Individuals are scored on their ability to attain favorable investment terms for themselves and on the quality of the relationship they develop with their potential business partner. The simulation introduces the incorporation of process and relationship interests into negotiation strategy. Relationship-straining conflict has been purposefully included in the negotiation to assess students’ ability to deal with difficult demands while maintaining a positive relationship.

The venture capital (VC) firm Aerovent Capital is considering a $100 million investment in the startup company Earth Escape. The founder of Earth Escape and the lead partner from Aerovent Capital must negotiate a term sheet outlining eight significant terms of the investment. Both parties are concerned with structuring a deal that protects their substantive investment interests and with creating a positive foundation for their potential collaboration. Thus, both individuals are scored on their ability to negotiate favorable investment terms for themselves and on the quality of the relationship they develop with their potential business partner. Each negotiator’s Total Score is a sum of Substantive Points, awarded according to the agreed-upon terms of the investment, and Process Points, awarded according to each partner’s perception of the negotiation process.

The eight negotiable terms of the investment constituting the Substantive Points include: VC equity percentage, type of stock, dividends, antidilution rights, number of VC-appointed board members, vesting of the founder’s shares, CEO replacement provision, and “no shop” provision. The confidential instructions for the venture capitalist and founder outline specific point values and resistance points for each term. Both parties’ BATNAs (Best Alternative To a Negotiated Agreement) are described and quantified. After the term sheet has been agreed upon, the VC and the founder independently fill out questionnaires that ask them to evaluate each other on five attributes to determine the amount of Process Points they are awarded. These attributes serve as proxies for assessing the future of the business relationship based on their experiences during the negotiation. Both negotiators aim to maximize their individual Total Scores. Familiarity with venture capital investing is not a prerequisite for this simulation.

You can see the Aerospace Investment negotiation game being played by participants in this short, two-part video. Part A:

And Part B:

MATERIALS:

Participant materials include:

  • General Instructions for both parties

 

Confidential materials for Venture Capitalist, including:

  • Confidential Instructions
  • Confidential score sheet
  • Process evaluation of the Founder

 

Confidential materials for the Founder of Earth Escape, including:

  • Confidential instructions
  • Confidential score sheet
  • Process evaluation of the Venture Capitalist

 

Teacher’s Package includes:

  • All of the above
  • Teaching Note
  • Results and Analysis by Professor Gordon Kaufman from his 2010 course

 

Aerospace Investment Attributes

Time required:
2-3 hours
Number of participants:
2
Teams involved:
no
Agent present:
none
Neutral third party present:
none
Scoreable:
Yes
Teaching notes available:
Yes
PON Teaching Negotiation Resource Center

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Soft copy vs. hard copy

You may order this role simulation in either soft copy (electronic) or hard copy (paper) format. If you select the soft copy option, you will receive an e-mail with a URL (website address) from which you may download an electronic file in Adobe Acrobat PDF format. You are then permitted to view the document on your computer and either print the number of copies you purchased, or forward the electronic file as many times as the number of copies you purchased. You will only receive a link to one electronic file per document. So, if you order 25 soft copies, you may either forward copies of the link to 25 people via e-mail, or print (and/or photocopy) 25 hard copies of the document.

If you select the hard copy option, you will receive paper copies of this role simulation via the shipping method you select.

The purchase price and handling fee are the same for both soft and hard copies. Soft copies do not entail a shipping fee.

For additional information about the soft copy option, please visit our FAQ section, or contact the PON Teaching Negotiation Resource Center at tnrc@law.harvard.edu or 800-258-4406 (within the U.S.) or 781-966-2751 (outside the U.S.).

Please note: At the present time, Teaching Negotiation Resource Center soft copies are compatible with the following versions of the Adobe Acrobat Reader: English, German, French, Spanish, Swedish, Portuguese, Japanese, and Korean. If you have a different version of the Acrobat Reader, you may wish to download one of these at http://www.adobe.com/products/acrobat/readstep2.html, or contact the PON Teaching Negotiation Resource Center at tnrc@law.harvard.edu, 800-258-4406 (within the U.S.), or 781-966-2751 (outside the U.S.) for further assistance. This restriction does not apply to the freely available Teacher’s Package Review Copies.

Ordering a single copy for review

If you wish to review the materials for a particular role simulation to decide whether you’d like to use it, then you should order a single Teacher’s Package for that role simulation. A PDF, or soft copy, version of the Teacher’s Package is also available as a free download from the description page of most role simulations and case studies. There is no need to order participant materials as well as a Teacher’s Package, as all Teacher’s Packages include copies of all participant materials. In addition, some Teacher’s Packages (but not all) include additional teaching materials such as teaching notes or overhead masters. Please note that the materials in Teacher’s Packages are for the instructor’s review and reference only, and may not be duplicated for use with participants.

Ordering copies for multiple participants

If you wish to order multiple copies of a role simulation for use in a course or workshop, simply enter the total number of participants in the box next to “Participant Copies.” There is no need to calculate how many of each role is required; the Teaching Negotiation Resource Center will calculate the appropriate numbers of each role to provide, based on the total number of participants. For example, if you wish to order a 2-party role simulation for use with a class of 30 students, you would enter “30” in the box next to “Participant Copies.” You then would receive 15 copies of one role and 15 copies of the other role, for use with your 30 participants. As another example, if you ordered 30 participant copies of a 6-party role simulation, you would receive 5 copies of each role.

In the event that the number of participant copies you order is not evenly divisible by the number of roles in the simulation, you will receive extra copies of one or more roles. Participants receiving the extra roles may partner with other participants playing the same role, thus negotiating as a team. So, for instance, if you ordered 31 copies of a 2-party role simulation, you would receive 15 copies of the first role and 16 copies of the second role. One of the participants playing the second role would partner with another participant playing that same role, and the two would negotiate as a team.