The founder-investor relationship is nuanced. It’s a tightrope walk with a constant chance of falling off because how an investor thinks is profoundly different from that of a founder.
On top of it, the interests are never perfectly aligned. Investors want ROI. Founders want to build.
So, the question is, how do you find the perfect balance?
Nurturing a Positive Dynamic Between Founders and Investors: 7 Best Practices
The key to navigating the relationship between founders and investors is to accept that there is more to the partnership than just money.
Next, when faced with tough times, think about why you got the investor on board. This acceptance forces you to look beyond the surface of the conflict and find a solution.
Let’s take a look at some best practices recommended by experts:
1. Research Before You Sign a Deal
The crux of a solid relationship is compatibility. There's no chance of finding synergy with an investor if it's not there.
So, do your due diligence and get to know the investor before partnering. Don’t rush into taking money from random investors. It’ll eventually lock you in a dysfunctional relationship with no escape.
2. Go Beyond Just Money
Don't look for investors who bring nothing to the table except money. Where the rubber meets the road, these investors are looking only for returns, which can rock the relationship boat.
Instead, find investors that also help with support, networking, etc. The incidental benefit here is that conversations on what value the investor brings are a great catalyst to establishing a better relationship.
3. Carve Out 1-On-1 Time
The most effective strategy to have a good relationship with investors is to spend time with them. Nothing builds rapport better than regular face-to-face meetings, so set aside a fixed time when everyone meets.
During these informal discussions, ask for advice. Why? Because it allows investors to know you and the co-founders, how you work, your progress, and how relentless you are to achieve success. It has a compounding value that often translates to funding.
4. Define Clear Roles and Responsibilities
Another critical aspect of finding a balance between co-founders and investors is setting clear boundaries. It helps avoid misunderstandings because everyone is on the same page about what to expect from the other.
For example, co-founders may be responsible for developing the product or service, while investors help you leap through macro challenges like a talent shortage or looming recession.
5. Work on Building Trust
A stable relationship is founded on trust. With trust established, it is easier to work through challenges. Establish one with investors and co-founders through honest and transparent communication. The key here is transparency.
Persistent information asymmetry is frequently a source of tension between investors and founders. When you’re open about your progress, good or bad, it assures investors and shapes their confidence in you.
Don’t oversell or spin the numbers; rather, keep them informed. It’s tempting to hide bad news, but remember that an investor might be able to help.
So pick up the phone, get the uncomfortable conversation out of the way possible, and then ask for their recommendation. Focus the discussion on the solution rather than the problem.
6. Set Realistic Expectations
Communicate clearly what can and cannot be accomplished within a specific timeframe. It avoids disappointment and frustration down the line.
Investors need to know the potential risks associated with the startup, and co-founders need to be realistic about what can be accomplished with the available resources.
7. Understand Others’ Perspectives
Most troubles arise from misunderstandings. So, don’t assume that the investor or co-founder has damaging motives when conflicts arise. They have a job to do just like you, and they’re simply going about it.
Look at the problem calmly and while standing in the other person's shoes, and then start to resolve it.
Final Thoughts
The relationship dynamic between founders, co-founders, and investors can make or break a startup.
If you’re struggling with finding the right people, sign up for Scalix.
Our platform offers founders access to a community, capital, customers, and convenience that help build sustainable and scalable startups.
