The world has a communication problem. At the slightest sign of battle or a hard conversation, many revert to a text, email or even not following up at all.
In the startup world, investors tell founding teams how they are incredibly interested to invest in the current round and roll out the red carpet only to hide in a corner when the round becomes stale and other investors fail to materialize. Founders wax poetic about giving a vc an early look in front of a future round because of “how much they respect them” and love their portfolio, only to go radio silent because they found a better date at the dance. The list goes on and on…
There is nothing new under the sun. I imagine these bottomless promises have been spoken for centuries. Reputation is a hard foundation to build. Both startup and investors have to be true to their early word. When investors and founders agree to work with each other, it truly is a marriage vow, as the ride is long and each side better like each other. Trust is shattered and the ride becomes miserable when either side isn’t up front with each other.
We see these relational fissures many times in fundraising rounds. We see investors court and woo founding teams only to hang on the sidelines waiting for signals from other investors and then routinely fade into the sunset ignoring the founders’ calls. Additionally, many founders in the early days of their startup who need capital tend to orally promise super-prorata and other future goodies to investors just to bring in the much needed cash. If the founders starts to see serious traction and new funding interest, all those promises can quickly be forgotten as the team gets lost in the seduction of new and shiny toys. Words matter and actions back up words, so if you are a founder or investor be careful with selling too hard too early because these conversations can backfire in a big way.
This scenario can also be seen when the ship is going down. Investors who state they will be there in the good and the bad start only to ignore the 10pm phone calls when the cash is burning hot and fundraising meetings are not going well are no help. Founders who fluff their investor updates with “everything is awesome” verbiage and then go quiet for long periods of time because things are blowing up do themselves no good. The founders and investors that stick out from the crowd are the ones that are open and honest about everything from the starting line, and climb the mountain or go into the valley together.
Startups are hard and they rarely go the way we all draw it up. If you are a founder on the rocks and you have not been open and honest with your investors, hit reset and start today. If you are an investor that is currently turning aside from SOS smoke signals from a hurting team, get on the phone or schedule a meeting asap.
And please, pretty please, stop communicating solely by texts and email. Sit across from each other or on a phone or video call and talk, and watch how things get better not worse.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
