Chapter 5 - Investor Management
IN THIS LESSON
The Polygamy of Investing: Married for Life
Metaphorically speaking, forming a partnership with an investor is like a marriage. You and the investor will be together for many years. It is a give-and-take relationship that requires trust, collaboration, and mutual respect. But since you need multiple investors, it’s as if you are “married” to multiple investors at the same time, conjuring up comparisons to the concept of polygamy.
Long-lasting Partnerships
Well, this terminology of “polygamy” may seem a bit extreme, but the point is that you are partners with all your investors. Don’t negotiate too harshly because you need to be in these relationships for the long term– both for your benefit and their benefit. Everything should be done with the goal of cultivating and ensuring long-lasting and prosperous relationships (business marriages if you will).
Because it’s like a marriage, it also means that it can be complex at times. Your earliest investors will likely be with you for 7-10 years. People change; feelings change; circumstances change over time. There could be wrangling over control. One is more passionate about something than the other. One can be more risk-averse than the other. An investor’s eye may also wander.
One way to try to work things out is to understand each other’s ground rules. It is better to be clear upfront about non-negotiables (values) and what can (and should be) negotiated. It is also wise to think ahead about what would happen if the relationship became rocky and you end up in litigation (like a married couple in court?).
You will want to make sure that the contracts you sign with an investor at the beginning are not going to have disadvantageous loopholes in it that could hurt you in case things turn bad and you end up in court with an investor (partner). You clearly don’t want the relationship to sour, but history shows that an investor can turn into an unexpected adversary and try to have you removed from your own company.
But if you proactively work on your relationships with your investors, there is a much less likelihood that things would turn bad. One of the best things you can do is to look at the future with your investors before they invest and make sure you are all aligned, but then also continue to look at the future together, asking your investors what they think, addressing their questions and concerns and being a leader who communicates regularly and openly.
Constant communication is imperative. The more transparent you are, the more trust you will build, reducing the risk of the relationship possibly going sideways in the future. Challenges or troubles may manifest in different ways at different times, but if you treat your relationships with your investors like a marriage, you can make it through the tough times and become stronger through it.
While it may seem polygamous to have multiple “married” relationships with different investors, you are still staying true to your dream for your start-up, and you are demonstrating commitment for a cause. Also, you are making honesty and transparency a way of doing business – something to be respected.