A good investor is not just monetarily invested in your venture but emotionally as well
Lack of communication and disclosure can sour a relationship
DURING a recent trip to New York, I had the pleasure of sitting down with Dane Atkinson, the chief executive officer of analytics software start-up SumAll.
It was a wide-ranging conversation, which covered the usual topics of technological innovation, start-up culture creation and, of course, funding.
As a long-time serial entrepreneur, Atkinson has had his fair share of experience dealing with investors of all personality stripes and has learnt one valuable lesson.
“With investors, the trick is to give them something to do before they find something on their own,” he said, much to my amusement.
According to Atkinson, what inadvertently sours most relationships between founders and investors is the lack of communication and disclosure.
Once the check has been cashed, the constant pressure on founders to broadcast and pitch the company vision is temporarily eased.
Many founders tend to retreat into their bubbles, focusing on dealing with the challenge of daily operations in an “okay, money is in, now let me get back to my real job” kind of mindset.
However, from an investor’s perspective, the due diligence and eventual transfer of funds is only the first step in a much longer journey. It is not exactly the time to leave a newly invested-in company alone.
Unless a founder communicates clearly with his or her investors about the company’s progress and offers opportunities in the growth path for them to “roll up their sleeves” and step in, the chances of sowing distrust or worse, direct meddling, are increased.
It is a concept those working in large corporations are intimately familiar with, and it is called ‘managing up’.
In his 1954 book, The Practice of Management, consultant Peter Drucker wrote: “You don’t have to like or admire your boss, nor do you have to hate him. You do have to manage him, however, so that he becomes your resource for achievement, accomplishment and personal success.”
According to him, the success of that relationship is your responsibility and one must also be mindful that nobody likes surprises — especially the boss — so you need to keep them in the loop.
As uncomfortable as the thought of investors as their “bosses” may be to many founders, the fact remains that they do hold a stake and, as such, have both a voice and role to play in your company.
According to Atkinson, a good investor is not just monetarily invested in your venture but to a certain extent, emotionally as well.
“They believe in it enough to put money behind it and want it to succeed as much as you do, but you also need to remember that money is not the only thing investors bring to the table,” he said.
Indeed venture capitalists, seed funds and connected angel investors have at their disposal an extremely large network of resources and expertise, which they can utilize for a start-up’s benefit.
However, one can forgive founders for wanting a break before giving their investors an update or accounting. Getting through the initial dance in the campaign for funds can be exhausting.
During the recent Malaysian Venture Capital and Private Equity Association (MVCA) dinner and awards night, I was listening to a few venture capitalists lamenting the lack of knowledge by founders on the different categories and types of venture funding.
As the discussion went on and the level of financial jargon amped up, my eyes started glazing over and my brain sparked up a mild throbbing in protest — I could only imagine what it would be like for non-business founders in one-on-one closed door meetings.
As the long-awaited angel tax incentive kicks off in a couple of months and the continued flow of new funding sources makes its way to our shores from more established markets, it is up to founders to navigate the myriad of options and focus more on what their investors can do for them beyond mere funding.
Which brings me to the message of today’s column — for both founders and investors, it is time to start thinking beyond the money and move the Malaysian landscape toward a more mature and developed standing in the funding arena.
Communications remain key in any partnership and it is wise to open these channels early when establishing a new relationship.
To quote Atkinson, “The problem with start-up culture is that there is way too much opportunity for evil with obfuscation of information from both investors and employees.”
So before it even gets to that stage, keep your investor in the loop and be honest about the areas where you, as a founder, are unsure of to invite feedback and help. What have you got to lose?
This column originally appeared in the Metro Biz section of The Star and is reprinted here with its kind permission.
Start-ups, don’t leave your customers in the lurch
Giving our own start-ups a fair shake
Filling up white spaces
For more technology news and the latest updates, follow @dnewsasia on Twitter or Like us on Facebook.