From an outside perspective, the relationship power relationship between founders and investors appears straightforward. Those who hold the purse strings tend to be in control, have a voice, and sometimes have the final say. But in the delicate world of venture capital and startup dynamics, reality often paints a different picture. Founders are concerned about how investors perceive their company’s performance, keeping a cautious distance and reluctant to share updates that aren’t exactly rosy.
Founders seek investors not only for a much-needed capital injection, but also for valuable insights, connections, and a wealth of experience – what we call “smart money.” In certain unique founder-investor partnerships, founders even view investors as trusted sounding boards. But as the startup journey progresses and more investors become involved, the complexities of managing these relationships become apparent. Neither side wants to lose control over company decisions. Even though we have a common goal of unprecedented success for our company, it can sometimes feel like we are on opposite sides of the table.
Vladi Sandler, CEO and co-founder of Lightspin, which was acquired by Cisco for $250 million this year, revealed a serious concern, saying, “Subconsciously or not, the founder’s biggest fear is… to be forced out of the company by investors.” This very real and natural concern shapes the relationship between founders and investors over time. Some founders fear the possibility of losing control over their companies and choose to limit communication to avoid future costs, even if it means missing out on returns from investors. The worst-case scenario is losing control over the company, but facing regular reprimands, criticism, and criticism ultimately drives founders away from regular communication with investors.
Sean, co-founder and CTO of a post-seed startup, shares his thoughts on how to address this concern: In most cases, it will take place at a board meeting, but earlier if approval is required before a strategic decision can be made. Investors ask me, “How are you doing?” but I feel like what he’s really saying is “How’s my money doing?” “By taking them out of the day-to-day operations, things are quieter.” I found that I was protected, I didn’t have to explain my decisions, and I didn’t get scolded.”
Tami Bronner, partner at Vertex Ventures, shares her thoughts as an experienced director investor: It is up to them to decide which advice to use and which sources to trust. However, there is an obligation to utilize surrounding resources and collect relevant data for decision making. It provides investors with a macro view of the market, making it a valuable resource.
“I agree that if the ROI from an investor is negative, it is wise to avoid interacting with them. In most cases, things are not as black and white as they seem. Distance yourself from investors. A conscious decision to place should be based on an inability to consistently obtain value from investors, not on an unwillingness to address their feedback or questions. Conflicts, disagreements with investors Tami and many other investors believe they can inject significant value into their companies if given the choice.
Sean continues: “Most founders would agree that investors believe they know more about your business than they actually do. They expect you to listen when they speak their mind. Vladi makes a similar observation about investors’ understanding of the business. “More than 90% of investors are not people in the field, nor are they founders or owners of startups themselves. As a result, their understanding of the business may be limited. It’s a problem.” They see things from a different perspective, and it’s unrealistic to expect them to match me perfectly. ”
For Vladi, there was always one way to approach this problem. It’s visualization. Vardi emphasizes transparency as his top value. “I have always valued transparency for both my employees and investors.My early stage investors Nicole Priel (Ibex Investors), Yair Snir (Dell Capital), Ben Daniels (IBM Ventures) had full access and were involved in every detail. They gave me the freedom to act out of trust because they knew I would raise the flag if something bad happened. Throughout, you have given me the freedom to act on trust.” Why we do what we do, where the gaps are, we We communicated how we were progressing and where the company was heading. ”
This is a chicken and egg problem. Was Vlady’s approach the reason investors stayed with him? Are you supportive but not pushy? Do you offer advice but not pushy or critical? I would argue that in most cases, yes. Investors, like everyone else, want to be seen, wanted, included, and heard. They will never be left in the dark about how their money is being handled. “I also kept an open channel about what I wanted from them and whether they let me down or weren’t proactive enough to support me.” Tami et al. Just like in a close relationship, he suggests setting clear expectations for investors: “This can be done by asking questions and providing regular feedback. Is that a way to show that you’re interested in the game? It could just be a miscommunication.”
By allowing access and keeping investors informed, you can get two for the price of one: freedom of action and solid advice. Ultimately, fostering relationships based on trust and transparency can help startups succeed, benefiting both founders and investors.
Noa Matz is an early stage investor, certified psychologist, and professor at IDC University.
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