The relationship between an investor and an entrepreneur is a determining factor in the success of both parties. As with any relationship, open and honest communication is key. For first-time entrepreneurs, understanding where the line is (or if one even exists) in their relationship with their investor can be a challenge. Even for the most seasoned investor, every new relationship with an entrepreneur is different and requires time and dedication to get reach the proper balance.
When entrepreneurs and investors make a commitment to each other, there are explicit and implicit promises that are made.
Explicit promises
The explicit promises are usually spelled out in the legal documents pertaining to an investment deal. The entrepreneur and the investor know exactly what to expect and what they need to contribute by virtue of drafting up and signing a deal.
Implicit promises
This is where things get tricky because nothing is set in stone. Implicit promises are generally understood as part and parcel of doing business and aiming for success, but what these promises are can differ from entrepreneur to entrepreneur and investor to investor.
General qualities to look for in a good match include:
Honesty – Both parties should enter the relationship willing to be honest about their goals. Overpromising or working with unrealistic expectations will only hinder the potential for success. It’s important to have both sides fully understand what they are agreeing to up front.
Respect – Entering a relationship with someone you don’t or can’t respect for whatever reason is never a good idea. The entrepreneur should value and respect the investor’s knowledge and advice, just as the investor should value and respect the entrepreneur’s vision and hard work. Without mutual respect, the deal is a ticking time bomb.
Trust – Trusting each other to make the best decisions possible for the company or project is another key component of a successful business relationship. As an investor, knowing that the entrepreneur is trustworthy and will make the right choices in their company’s development is critical to deciding whether or not to invest. As an entrepreneur, trusting that the investor has your company’s best interests in mind and that their support is there for the long haul is necessary as well. If you can’t trust one another’s dedication and integrity to the project, you shouldn’t be working together.
Qualities to look for in an investor
Dedication – The typical investor has a portfolio of companies that they are invested in. This means that yours is but one of the companies they need to dedicate their time to. A good investor will always make the time for you, and provide you advice and support when you need it. But, recognize that all their other investments need attention too, and sometimes they will require more attention. Be happy you don’t require all their attention; this likely means you’re not their problem child!
Active participation – Tying into dedication, your investor should be involved in conversation with you frequently. Regular meetings to talk about the progress of the company, wins, and potential challenges is necessary to staying on track.
Freedom to make decisions – If you’ve received funding from an investor, the bottom line is that you’re spending someone else’s money. However, this doesn’t mean that they can dictate what it is that you do with the company. A good investor will provide you with advice and support based on their knowledge and experience, but will ultimately leave the final decision up to you.
Red flags in an investor
Being too busy – If your investor rarely has time to meet with you or talk to you about your company, they are not making you a priority. People are busy, but someone who believes in you and your company will make time for you.
Being too involved – On the other hand, your investor shouldn’t be overly involved in your company. Boundaries should be set early on and respected and you should be free to make the decisions you believe are best for your company and team.
Not connecting on a deeper level – Your relationship with your investor should be more than just business. You should feel that you are able to tell your investor when you are struggling, whether it’s business-related or personal. There should be a connection beyond just business and you should feel that your investor cares about your well-being as much as they care about your company’s success.
Qualities to look for in an entrepreneur
Ambition – Being ambitious is what got the entrepreneur to your doorstep in the first place. Investing in a company that is led by someone with big goals and big aspirations ensures that you’re investing in someone that doesn’t give up easily.
Flexibility – As the company grows and develops, it’s also important that the entrepreneur is flexible in their approach. Changes will occur, things may not go as planned, and the vision or direction may need to change. Investing in someone that is comfortable with adjusting to the ups and downs accordingly is crucial.
Knowing when to ask for help and when to keep pushing – This is an important distinction for the entrepreneur. While you don’t want to invest in someone who needs your advice every step of the way, you do want to invest in someone who isn’t afraid to come to you when they really do need help. There is a fine line between knowing when to keep going down a path and when to stop and ask for directions and your entrepreneur should know where that line is.
Red flags in an entrepreneur
Indecisiveness – Investing in an entrepreneur that can’t make decisions on their own is a bad sign. Doing something is always better than doing nothing and having an entrepreneur that is too afraid to take a calculated risk because it may not work out will hinder their development and their potential to succeed.
Too eager to please – Entrepreneurs, especially those who are running their first company, may have the tendency to sugarcoat for fear of disappointing or scaring off their investor. Staying accountable in good and bad times is a quality that entrepreneurs need to have to build the trust necessary for a successful relationship.
Not connecting on a deeper level – The entrepreneur should care about more than just the money you’re contributing. They should respect and value your knowledge and experience and be genuine and authentic in their connection with you.
As with any relationship, it takes two to tango. Sometimes people or circumstances change and the match isn’t always a perfect one. Entering into an investment partnership is an important decision that shouldn’t be taken lightly on either side. Take the time to get to know each other early on, before making a commitment, and look for the qualities that are important. Finding the right investor or entrepreneur for the particular situation will save both parties a lot of time and headaches later on and will boost the chance for the relationship, and the company, to succeed.