Humouring investors – not so funny…

Don’t think that once you’ve seen the inside of the investor’s purse that the relationship can be trivialised. If anything, it just got serious. DORON BEN-MEIR

By Doron Ben-Meir

All of us that have started and built businesses know that self confidence is a very important part of being a successful entrepreneur – it is the confidence that either we will solve the problem or we can find someone to solve it for us.

Once we accept money from a value-add investor – angel, VC, corporate – we enter a new paradigm where our investor becomes a partner – a partner normally convinced that he has more to offer than money alone. Often the investor is right in this regard… but perhaps sometimes he isn’t.

It is typically the case that during due diligence or shortly after the first investment is made, that investors and founders will take time out from the business to review strategy, planning etc. The outcomes of these sessions often involve resources being directed at a more systematic analysis of the market and a questioning of the accepted wisdom to that point.

Given the confidence with which many entrepreneurs embark on these journeys, there can be a tendency to humour investors – letting them believe they are making a contribution while in reality the entrepreneur is running his own show.

There are various reasons this can happen, but the two most common are:

• The questioning/strategic discussions drill into an insecurity that the entrepreneur has been suppressing. This is uncomfortable and often causes irrational responses as the entrepreneur tries to resurrect his confident façade.
• The entrepreneur simply disagrees with his investors and, rather than waste a lot of time explaining himself, just gets on with the job.

I’ve seen this scenario played out many times, and it’s a dangerous game for both the business and the entrepreneur. While humouring investors may relieve short term pressure, in the long run it will undermine their confidence in you and set you up for far more stressful times if the business doesn’t track to plan.

Start-up boardrooms are usually filled with pretty big egos, so don’t make the mistake of thinking that you’re the only one with firm views about how the business should proceed.

Investors don’t expect entrepreneurs to have all the answers… nor do they believe they do… but they do expect open and honest partnership. While it may appear that your investor is incapable of adding much value, they are still your partner and mutual respect is essential. Yes it might take up valuable time to explain why an idea might not work and so on, but this investment in communication will pay dividends.

If nothing else, it forces you to defend your own view, which may lead to further insight.

And you never know… if the business falters and needs more money, all of a sudden the lead weight in your back pack could turn into an emergency parachute.

Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.