Investor-Founder Relationship – Finding the Right Balance
For a start-up, getting an investor is an important milestone. It gives founders some reprieve from the persistent cash-flow issues that start-ups seem to struggle with, and provide the impetus for growth. Also, there is a sense of validation because someone is giving you a definite vote of confidence by agreeing to invest in your business.
From a founder’s point of view, all too often, getting an investor on board comes with its own set of adjustments to deal with. It is managing these adjustments, ensuring no friction is created and that the enthusiasm and energy of the company is retained, which is critical to the investor-founder relationship.
Here are some things one could consider before getting an investor on board:
It’s a give and take
You may have a good sense of how much money you need and how you intend to spend it. But, you need to be equally clear about what you are willing to give up to get that funding. Have a clear understanding of what the investor is looking to get out of the relationship. Is it equity, management control, future monetary gains or is this just an altruistic act for the betterment of the start-up ecosystem. But whatever are the key drivers for your investors, you need to know and understand them, to evaluate if they are acceptable to you.
The fact that someone is willing to give you money is not reason enough to give them a part of your company. Think about the entire value proposition.
Terms of engagement must be clear
In general, investors are not in it to run your company, but they have every right to demand their pound of flesh. Let us try and draw parallels with a housing loan, for example. Let’s say you’ve taken a loan from the bank to build your house. Just because the bank has loaned you money doesn’t give them the right to enter your house and decide what colour you paint your walls. But at the same time, if you default on your loan, then the bank is within its rights to come and confiscate your house. It is a similar situation with investors too. As long as you are delivering on your promise, whether it is growth numbers or market penetration, there is no reason to interfere. But in the event that this does not happen, there has to be agreement on the role of the investor in this situation. However, the right investor can bring in the right connects for growth and provide and inputs to become more efficient.
The chemistry as well as ideology must be in sync
Choosing the right investor for your start-up is as critical as choosing any other relationship that is important to you. So, give it the same amount of respect. Make sure you communicate – discuss, debate, understand. Discuss your strategy and check for alignment. If there are unforeseen market changes, how would you each react? What are your top priorities? Market reach? Subscribers? Verticals? And what are the priorities for the investor? – Profitability? innovation? Where do you each stand on values and integrity? Talking through all of these will likely limit conflict in the future.
Getting an investor on board heralds a new era of growth for a start-up. But keep your eyes open and focus on the right aspects before zeroing in on the right investor/s for your company.