That’s quite a perceptive question. I believe that it always pays to understand the perspectives of one’s counter-parties, whether they be investors, customers, employees or anyone else. If you do this, you understand both the areas of congruence for you and your counter-party as well as potential pitfalls.
Here are some things to watch out for on the investor front:
- It is not very common to have many VCs early in the game. Companies tend to acquire multiple investors only after two or three rounds of funding. This means that your relationship with your earliest investor may be different from your relationship with your later investors. This doesn’t have to be a challenge in and of itself — just make sure that you build trust with all of your investors, disclose all necessary information to everyone equally and don’t play favourites (even if you do have a favourite).
- Ensure that you have a good idea of each investor’s desired time horizon for an exit while you consider which investors to raise money from. Some investors (possibly your earliest investors) may be looking to exit sooner than others. If you know this in advance, you can manage the situation appropriately, e.g., by finding a buyer for one investor’s shares instead of selling the whole company.
- Similarly ensure that everyone is reasonably aligned on exit price. You don’t want to be in a situation where you have an offer on the table that some investors jump at while others say, hell no. Even if one group of shareholders has the legal right to overrule another group, this is not a terribly fun situation to be in. A collaborative approach is much better. You can maintain alignment over time by initiating discussions on price expectations at reasonable intervals.
- Sometimes two or more investors will want to be heavily involved with your company — and may have differing opinions on key issues. It is your job as the entrepreneur to navigate this delicately and ensure that your company isn’t derailed by disagreements or decision paralysis.
- Investors often have varying views on the legal rights and protections they may need. Unfortunately, maintaining a simple, aligned set of rights comes down to who has greater bargaining power. If you are a super-star entrepreneur running a high-flying company, you may be able to convince all investors to agree to a basic set of protections. If you are not in this fortunate situation, your most paranoid investor may drive the agenda and all your other investors may (quite reasonably) ask that the same protections apply to them too.
This is a cross-post of my latest column answering entrepreneurs' questions for Yourstory.com.