Highlighting the Importance of Communication between Investor and Founder – Guest Post by Angel One Intern Sam Houpt
Highlighting the Importance of Communication between Investor and Founder
True to any thriving relationship, the importance of communication between the investor and the founding team cannot be stressed enough. From the very onset both founders and funders need to work toward complete transparency. The need to be open, honest and forthcoming continues to be crucial long after negotiating a deal. Founders need to communicate the challenges they face, investors need to stay in continual contact and in many cases provide much needed support and guidance, and both sides need to foster a healthy relationship of open communication.
Communicate the negatives:
One hurdle baring open communication is the reluctance of founders to properly voice any hardships their business is facing with their investor. This detriment is highlighted in an interview with Angel Loop CEO Igor Freerer, who stresses the benefits of founders sharing concerns with their investors. In his interview, Freerer states: “One of the things founders are not doing properly is telling their investors about the challenges that they’re undertaking. This actually engages the investor. It makes them actively involved with your company and it makes them think about ways they can help.”
Problems need to be communicated honestly and quickly from their inception. Nothing will corrode trust faster than letting an investor and possible mentor think a situation is fine during an issue they could be helping to amend.
Most angel investors will invest in 8 to 10 different early stage and growth companies as a means of diversification. Because of this, it is vital for investors to maintain open communication with every single one of their portfolio companies and to not spread themselves too thin with both allocation as well as communication. As an investor you are an expert source of mentorship to new entrepreneurs. Your success is directly tied to the founder’s so it is crucial to keep abreast of industry/company changes and communicate often.
Communicate on an individual level:
Angels and entrepreneurs remain people at the end of the day, with their own quirks and flaws. Some deals may never come to fruition due entirely to personality conflicts. Because of this, the relationship between an investor and founder can be complex.
Malini Goyal of Economic Times even compared this relationship to marriage. The mantra goes that in a good marriage, each partner is responsible for more than half the work in the relationship, which sets a good precedent when discussing communication between investor and founder. The effort that an angel investor puts into communication should reciprocate that of the founder’s. An angel needs to show they are listening and be ready to assist by attending company meetings, giving relevant advice, and providing further help through their contacts.
With any fast-growing startup, healthy communication between founder and mentor should be of top priority. By founders being open and honest and angel investors attentively listening to their challenges while offering advice and feedback, a startup’s potential can be fully realized.