Abstract
We study negotiations involving angel investors and entrepreneurs where the two parties have competing goals — the objective of the investor(s) is to secure equity in an embryonic firm in exchange for capital, while the entrepreneur’s objective is to secure capital in exchange for an equity percentage in their firm. In this paper, we investigate the impact of ‘potential power’ and ‘actual power’ on negotiation outcomes. The negotiation context allows (1) investors to compete or collaborate with each other on a deal, and (2) all parties have the ability to walk away. We find that ‘potential power’ has a stronger impact than actual power, however, this relationship reverses when we introduce the impact of coalitions. While there have been some studies that have investigated potential power in a negotiation setting, this is one of the first papers to do so in an entrepreneurship setting.
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