Why Founders Don’t Trust Funders

I often find the relationship between founders and funders to be adversarial. Some entrepreneurs feel that investors are out to gobble up a big slice of their company; and they resent the fact that they become rich on the back of their toil, blood, sweat, and tears. This attitude harms the entire ecosystem. Rather than assuming investors are trying to grab a slice of their pie, entrepreneurs should treat their investors as trusted partners who are helping them to grow the pie so that everyone benefits.

I agree some investors have treated entrepreneurs shabbily, but it’s not fair to generalise. Just like some founders are going to be crooked or lazy, there are going to be some predatory and unscrupulous investors as well. Sometimes it’s the entrepreneurs themselves who are to blame for this sad state of affairs. They are so desperate for cash, that they’re willing to sign an SHA on any terms, and this is what causes problems.

Maybe you should treat your investors exactly the way you expect your employees to treat you.

There are a lot of surprising parallels between your relationship with your investors and with your employees. With your employees, you are trading a stake in your company for their hard work. Similarly, with investors, you are exchanging a stake in your company for their money. Ideally, both these should be win-win relationships, where everyone benefits when the company grows well.

When you try to induce a star coder to join you, you are selling him the promise that your startup will grow big, which is why he agrees to join you. He is willing to accept a reduced salary because you are giving him a stake in your company by offering him ESOPs. He trusts that working for you will help the company to be successful, and he will reap the rewards by being a partner in your success.

If you feel that it is unfair that you are forced to sell a large chunk of your company to investors, don’t forget that some of your unhappy employees may resent the fact that you are becoming disproportionately rich as a result of their hard work !

Finally, remember that it’s not in the investors’ best interests to cheat you. No investor worth his salt is going to allow his reputation to get damaged by taking advantage of a founder. He may get away with it once, but this is going to harm his professional reputation. Funding startups is not a one-off deal, and good investors have a life long career they need to nurture, which is why you will find that they respect founders who respect them.

These are my personal views and I’d love to hear your experiences, so we can bridge the gap between founders and funders.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.