It is often said that the relationship between an entrepreneur and an investor is much like a ‘marriage’ and communication between them is very crucial in the journey of the startup. It is important for you to communicate the essentials with an investor before signing on the dotted lines.
Entrepreneurs need to realize that after raising the funds with a business plan, their contact doesn’t end there. Both of them are working towards the same goal, a good return on investment, while the entrepreneur invests his/her time in the startup, the investors have put in their money in the venture.
The following are the guidelines as to how both these entities can come together to ensure they have a powerful partnership in building the startups’ success
Acknowledge The Expertise
Investors generally come with a great business understanding and can offer greater insights and open networks for scaling up the business fast. It is also equally important for you to acknowledge the expertise/mentorship that they are able to bring forward in spite of their busy schedule.
In one of the research papers published on the investor-entrepreneur relationship on venture capital, it is stated that the investor can know some characteristics of the entrepreneur, depending of the maturity of the project, the type of industry and some other assessable features. However, there are many others that cannot be known, as the effort given by the entrepreneur to the project, for example. Although the entrepreneur is quite optimistic with the project, the failure cost could be very expensive.
Even if the current project doesn’t live up to the expectations, then the investor who truly believes in you because of the efforts you have put in to keep them updated might even back your other ventures.
Build The Company Together
It is important to maintain a healthy relationship with the investors as investors are not just people with money, but individuals who know how to make more money. Investors do not sit back and relax after putting money in your startup, they promote your company through word of mouth and are mostly available to get on a call and help you through your troubles.
As Silicon Valley veteran Steve Blank puts it, if you’re a first-time entrepreneur, you might have people sitting on your board that have seen the entire lifecycle of a company 80x to 100x more than you have. And they have seen thousands of pitches.
It is essential for the entrepreneurs and investors to build trust both in the business and between them right from the initial days of fundraising to ensure that no further clash of interest occurs that might hamper the growth of the business.
Entrepreneurs and investors need to discuss the level of involvement before hand. Most investors might not be interested in your quotidian operations, highs and lows like the stock market therefore it is essential that you update each other regarding the major deals, revenues and roadblocks/pitfalls each month to ensure that the startup is moving in the direction as planned.
Also, entreprenurs need to be equally open to lend an ear when investors are expressing concerns over the current stage where the startup is heading.
Haresh Chawla, once shared “the Rahul Yadav story you’ve never heard before” where he had mentioned that Start-ups need help to become organizations with culture, with rituals, with codes of conduct and with an operating philosophy. Something that’s taken successful companies years to build. How do you expect a start-up to do it in no time without any help? Help the founders recruit grey hair, and respect its value. Finally start-ups are also companies – a set of people who have to work together in a system to create value.
In short, it is essential for both members of the party to keep up with the expectations they have set before-hand and also be open to experiments as they progress. Just remember, every relationship no matter how rocky or awesome the start was, the end’s success eventually depends on the core values you exhibit on the table throughout the journey.