Business angel–venture negotiation in the post-investment relationship: the use of the good cop, bad cop strategy

Abstract

The paper reports on the utilization of the “good cop, bad cop” negotiation strategy in ongoing investor–venture relationships. Four cases of business angel – venture involvement are studied over a period of several years. Earlier research on the good cop, bad cop strategy has described its efficiency in obtaining maximum distribution in short-term distributive bargaining. This has been explained as a result of the emotional contrast effect unlocked by the sequence of interaction with the bad cop followed by interaction with the good cop. In an ongoing investment relationship, other rules apply. The present findings suggest that only a business angel who is already trusted can become a good cop – by virtue of introducing a bad cop. This is explained as a way of conducting negotiations without destroying the trust that has been built over time in the business angel–venture relationship. The strategy provides a scapegoat for the negativity associated with the negotiations. The bad cop assumes the blame, while the good cop is still trusted and can remain in the relationship, with less risk of being the target of any retained hostility.

Keywords::

• business angel
• “good cop, bad cop”
• negotiation
• reciprocal exchange
• attribution