Are investors and startup founders on the same side of the table, or the opposite side?
When things are going well, everyone feels like they’re on the same side of the table. When things are going not so well, it’s a different story. This is the reality of the startup-investor relationship. It’s not an easy relationship by any means. The relationship is made more challenging by the fact that it goes through an early honeymoon period shortly after an investment is made. Everyone is happy and excited. But then the real work begins. And the real difficulties.
I’d like to think that startup founders and investors are more often on the same side of the table than the opposite side, but if you believe that your relationship with investors will go smoothly from start to finish, you’re in for a big, big surprise.
Here are four suggestions for keeping startup founders and investors sitting closer to one another:
- Communicate! This is the most important thing for startup founders to do. Mark MacLeod (who I seem to be linking to constantly these days) spells it out nicely in his post, The Importance of Communication. The role of CEO (and frankly all startup founders) is to communicate regularly and transparently with investors and the Board of Directors. The minute you stop doing that, investors are instinctively going to shuffle to the other side of the table. You might not see it happening, until you need them for something significant … like participation in the next round of financing.
- Have measurable goals. I recently talked about how startups need to be much clearer and specific when describing how they plan to use the money they raise. When it comes to the relationship with investors, it’s critical that you have measurable, agreed upon goals. You might not hit the goals, but at least you’ll all have a collective starting point from which to get rolling. Without that – without understandable milestones that everyone is tracking – you and your investors can very quickly be heading on divergent paths.
- Be wary of ego. There’s no one in the startup business on the founder or investor side that doesn’t have an ego. I’m not sure you can survive in the startup game without one. But you have to be very careful about how that ego is projected and communicated. There’s a fine line between making a point and arguing for pride. There’s a fine line between sticking to your guns and blowing a gasket. And there’s a fine line between your personal goals and what’s best for your startup.
- Separate “lets have a beer together” and business. This is probably one of the most challenging things for startup founders to do, especially first-timers that haven’t raised capital before. Remember the honeymoon period? That can very quickly turn into the building of legitimate friendships with your investors. So you go and have a beer together. Shoot the shit. Talk hockey. Talk about startups in general. And so on. Your investors are now your friends. Except…
In the board room, or when big business decisions have to be made (especially tough ones!), those friendships can disappear. Business is business. Recreational time is recreational time. Separating the two is difficult, because you may feel that you and your investors are simultaneously on the same side and opposite side of the table. It can be confusing and extremely frustrating. So keep an objective, level-head about things and make sure you separate friendship and business.
The startup founder – investor relationship is not an easy one. Some say it’s like a marriage, but it doesn’t have all the same qualities of a marriage. For starters, you don’t spend that much time with your investors, which means you have less time to work things out. There’s no concept in the startup world of, “Never go to bed angry” cause generally speaking you’re not sleeping with your investors (hhhmm … that would odd!)
Secondly, the relationship between startup founder and investor isn’t on equal footing. The investor has all the money. Of course, investors can’t exist without entrepreneurs, they’d have nothing to invest in, but in a marriage you (hopefully!) don’t have that sort of dynamic where one individual has to go to the other and ask for such “big things”, like millions of dollars.
I’m very intrigued by working in the venture capital or seed capital world. When I mention that to others, I often say, “I’d like to see what it’s like on the other side of the table…” But more importantly, I like the idea of helping startups at a very early stage. We need more “roll up the sleeves” activity from early stage investors, especially with first-time entrepreneurs that raise financing and then can feel left out in the cold. And that only gets worse if the entrepreneurs can’t get the stabilizing help they need.
Ultimately, investors and startup founders spend some time on the same side of the table and some time on the opposite side. As a startup founder you have to be prepared for both to happen, and work very, very, very hard to ensure the relationship is as strong as possible, all the time.
thank you to Shutterstock for providing the photo.