The Love Hate Relationship Between Funders And Founders

A mature startup ecosystem requires that both entrepreneurs and investors work together in order to flourish. However, in India, relationships between them are tense.

Many entrepreneurs feel investors take advantage of their financial naivete by extracting their pound of flesh. They believe that investors want to take over control of their company, and will start micromanaging them, as a result of which entrepreneurs will no longer be able to pursue their dreams.

The other common criticism is that investors are not responsive – they do not bother to reply to their emails.

Finally, they believe that all investors care about is the bottom line – that they are heartless, and are not willing to support the entrepreneur’s passions and dreams.

However, Every Coin Has Two Sides.

Investors also feel that entrepreneurs are exceptionally naive. Falling in love with a great idea is not enough to run a business, and they need to learn to be a lot more hard-nosed if they want to become successful. They also feel that founders need to be a little more respectful, and that they don’t value the investor’s contribution enough – they think of them as being dumb money-bags.

Unless we can get entrepreneurs and investors to trust and respect each other, this ecosystem is never going to mature. The best way of doing this is by understanding each other’s perspective.

Interestingly, investors know that we cannot exist without entrepreneurs, which is why we respect them but don’t forget that we aren’t forced to become angel investors – we choose this option. Startup investing is just one of the many asset classes which are open to someone who has money – and most of these are far safer than becoming an angel investor!

Angel investors are not just coaches or well-wishers or mentors or cheer-leaders – they are willing to put their money where their mouth is! Yes, we acknowledge that there is a lot which entrepreneurs can do on their own, but they do need to work at earning the investor’s trust if they want to be funded. Just because an investor has money doesn’t mean he’s going to sign a cheque when an entrepreneur pitches an innovative idea!

This is why investors are very disappointed when they encounter entrepreneurs who are extremely technically savvy, but who haven’t bothered to do any homework about how to run a business. They don’t seem to understand how to create financial statements or report the key metrics needed to track operational success.

These are gaps which are easy to bridge, but entrepreneurs need to remember that the buck stops with them. Yes, it’s not compulsory for them to seek funding from investors, but if they decide to do so, that then it’s their responsibility to make sure the investor is confident that the entrepreneur can deliver what he has promised.

[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]

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