There’s often a lot of tension between funders and founders. When the company is doing badly, this is what you’d expect.
Investors are anxious that the entrepreneur is not putting enough time and energy to salvage the company, and they are scared that all the hard-earned money, which they’ve invested, is going to go down the drain. There’s often a sense of desperation, and this puts even more pressure on the poor founder, who feels abandoned and unloved. Interestingly, even when things are going well, this tension is often the elephant in the room, because there are issues about power, control, and rewards. Some founders believe that if the company’s doing better than expected; they should be given a bigger share of the pie.
After all, the success is due to the hard work they’ve put in, while the investors have just been passive onlookers and they believe that they should be rewarded for their efforts by being given more equity.
I think part of the reason for this tension is the fact that both funders and founders seem to speak completely different languages – they appear to be from different planets. Founders are very focused on their product – on creating clever solutions to problems, and taking these to market. They hope to improve the world, and hopefully become rich and famous in the process. They think that investors are hardheaded, money-minded bankers who just want the biggest return on their investment, and only care about making more bucks. They feel that they don’t understand the big picture or share their vision for the future. Investors, on the other hand, often think of entrepreneurs as being naïve – techies who may know a lot about their product, but know precious little about balance sheets and cash flows. They fear is that they will drive the company to the ground because of their immaturity and inability to focus.
Part of the reason for this problem is that there is often a lack of trust between funders and founders. It becomes hard to bridge the gap when one group talks in terms of ideas and visions, while the other only understands financial numbers. If things are doing badly, communication channels break down completely, and the relationships become adversarial, which is such a shame.
Every once in a while they both need to remind themselves that their interests are aligned – that they’re both on the same side and they need to respect each other, and that they have complementary skills! Each of them has an important role to play; and it’s worth learning the other side’s language, in order to be able to communicate more efficiently and effectively.
This is a responsibility, which founders need to take ownership for. If there is a breakdown in communication, they should accept the fact that this is because they did not do a good job with sharing their plans, and they should work overtime to fix this.
The good news is that it’s not very hard to learn the language of business; and once entrepreneurs understand the importance of becoming familiar with the lingo, the chances of the company succeeding increase dramatically. Both founders and funders have complementary skill sets, and we need to marry these.