While there are a lot of areas of friction between founders and funders, one of the trickiest areas is that of sharing information about what’s happening at the company after the funds have been transferred.
As investors, we expect the founder to keep us informed about how the company is progressing on a regular basis – what the highlights are; what the low lights are; what’s going well, and what’s not.
This is not just a question of the investor asserting one of his rights as specified in the shareholder agreement. Founders need to remember that one of the reason angels invest in a startup is that they want to see it grow. They want to help it to become successful, but they can only do so if they know what’s happening . They need to know the unvarnished truth, which is why they want regular reports from the founder.
The trouble is that most entrepreneurs are very reluctant to share information, especially when things aren’t going well. They may feel that they need to bury problems under the carpet, because they don’t want investors to lose faith in their competence and ability. Also, because they are entrepreneurs, they’re usually very optimistic and believe they will be able to solve it on their own , without getting the investor involved. Some may feel that they should not be troubling investors with their problems, because they’re big boys , and should be able to tackle these themselves. They are worried that asking for help reflects poorly on their competence. It’s true no one likes sharing bad news, which is why they prefer not talking about it .
This is why sometimes investors feel that getting information from the founder is like extracting teeth. They have to send regular reminders to the entrepreneurs , so they can figure out what’s happening. I can’t understand why founders aren’t more proactive about communicating regularly.
When things are going well, entrepreneurs should share good news with their investors – after all, we want you to succeed, and are happy to share your joy. This is something which should be done on a regular basis – not just to let investors know that things are on the right track or to show off how competent you are, but also to establish an emotional connection. Founders need to understand that early stage funders don’t just give money – they want to be more engaged ,and one of the best ways of doing this is by sharing information proactively.
Sharing information when things are going well is easy, but it’s critically important when things aren’t going well. This is the time when you really need help – when you find you are in a soup ! And who better to help you than your investors, who have skin in the game , and want you to succeed as much as you want to? Yes, they may have opinions which differ from yours, but two heads are better than one, and you should actively seek out their assistance. You may be worried that they may end up micromanaging you , but you should be mature enough to be able to listen to different perspectives, and then finally decide on what’s right, because it is your company after all.
Refusing to share information doesn’t help at all, and in fact gives off all the wrong signals to investors. When they find out that things aren’t going well, and that you have hidden the truth from them, they’re likely to be resentful and angry. Often founders wait until they are running out of cash, but by this time the damage has already been done , and there’s very little which they can do to correct it.
That’s why the secret for success is to over-communicate. Maybe your agreement asks for a report once every three months. Why not do this once every month? It is especially when you find yourself at an inflection point that you should do this even more frequently. This is not only to help your investors to help you, but also to help them feel that you are keeping them in the loop and respect their views.
It doesn’t take much time to prepare a report, especially if you do this on a regular basis. Remember, that the easiest person to fool is yourself, and it can be hard to see the writing on the wall when you are putting out fires on a daily basis. Providing updates is a discipline which will keep you grounded, and your investors can help you to ensure that your company is on the right track.
For most of us, asking for help does not come naturally, but you must put your fears and ego aside if you hope to learn quickly. Respect your investors as valuable resources. Update them on your business and let them challenge you. This will not only make you sharper , it will help you to get mired in your own bullshit. They can act as a trusted sounding board, and their feedback will help you course-correct faster if you’re heading down a tricky or sticky path. And if you don’t trust and respect your investors, then shame on you for raising money from them in the first place !
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]