Have you ever marvelled at the dexterity of a juggler as he tosses several objects in the air, performing the act in perfect harmony? Well, as an entrepreneur, you need to master the skill of balancing. There are multiple forces you need to harness, making sure they are in cadence. First, your product or service needs to cater to the changing market forces, staying ahead of the curve. The idea that you started with may no longer be relevant, so imbibe the art of pivoting. Next, you will have a growing team to contend with, so be aware of impending structural changes. Finally, it is essential to stay on top of board politics by working on your people skills. A single source of capital means power bias. Diversity in the funding sources goes in your favor most of the time. Still, by the time you have to juggle the disparate investor groups, you will have mastered the art of balancing and pocketed some allies on the board, I hope. Whenever a difficult investor situation confronts you, rather than quitting, always remember, they are here because you invited them in the time of your need. This acknowledgment will lead to a deeper introspection of the case on hand.
The art of anticipation
The wise person anticipates and preempts future moves; the fool reacts to situations as they unfold. Founders should be cognizant that you lose your absolute control of strategic decisions once you bring outside capital. To avoid turning into driftwood swayed by the higher winds, take control of the strings you do hold. Are you an innovator? Then, invest in your field knowledge so you are perceived as the container of elite information. A strategic genius in your field? Then plan to stay on top of the market competition, manage the timelines. Remember the power of allies. It is not enough that you alone evolve with the company’s life stage while your teammates are left behind. Your early employees are likely to be your closest allies; you picked them for a reason, right? Protect, train and prepare your early employees to grow with the company and strive to put them in power positions. If budget permits, hire experienced industry veterans to lend you their experience. You will need top managers on your side in case of a power struggle with your investors later down the road.
The rewards of due diligence
Seeking and gaining investors without thorough due diligence is doomed to lead to a dysfunctional relationship in the future. Just like your start-up’s success depends on your early team picks, your early investor team is crucial to your organization’s strategic path forward. Make sure that you are approaching experienced and credible investment sources; this is vital when you want to bring in more significant funding sources such as VCs and private equity down the road. Rushing into contracts with random investors early on means you lock yourself into no-escape deals and you lose bargaining power later. As you start building your investor Rolodex, be aware of group dynamics. Not all investors think alike or have the same values. Sometimes all it takes to bring down a start-up is an unresolved conflict between two warring groups of investors.
The power of honesty
There is no greater power on earth than the virtue of honesty. Deception can take you some distance, but a shaky foundation has never supported a high rise. Be upfront when you are signing a contract with your investors. You must have heard of “promise less, deliver more.” Let them know of the risks inherent in your company timeline and the start-up’s issues and values that are non-negotiable. Honest entrepreneurs know that business is frequently not easy when you refuse to compromise the truth. Things go south, patience runs thin, and pressure starts building to deliver results. However, investors respect founders who are accountable for their word, so learn to control expectations and confrontations with truth and facts as your power weapons.
The wisdom in walking away
One of the hardest things you can do in life is to let go of your love. A start-up to a founder is the seed you planted and nurtured as it grew into a plant. You did such an excellent job so far that it might come as a shock that you need to trust the higher powers to help ensure your beloved tree flourishes and bears fruits. And that might mean handing over the reins to somebody else who is more adept at that task than you. Rather than acting like a child whose favourite toy was snatched away, founders should look at the bigger picture. Sometimes walking away gracefully is the greatest thing you can do to let your start-up thrive with your dignity and relationships intact. Remember, in the start-up’s success lies your victory.
Many critical factors need to converge to make a start-up successful, the founder-investor relationship being one of them. It often starts on a high note only to get complicated as time passes. Entrepreneurs should know how to design and plan the power game to level the playing field. The tips and insights mentioned above will hopefully lend you an arsenal against mounting investor pressures.