I was recently on the phone with a venture investor evaluating one of our startups. He wanted to get my take on the company’s performance, future plans, and fundraising.
Such discussions can be delicate. On one hand, it’s important for founders and existing investors to present a unified story to new investors. This means being consistent on how we think about the company’s performance, and aligned on how much money the company needs and what it will do with the money. It’s difficult enough to convince someone new to your business to invest in a company that founders and existing investors may be tempted to conceal any disagreements they may have on these issues.
On the other hand, for a post-investment partnership to be fruitful, founders and existing investors need to build a trustworthy relationship with the new investor. The pre-investment process is the best place to do this. This requires sharing what you believe to be true, rather than putting together a carefully crafted story that attempts to embellish the company.
Disagreements between founders and existing investors about how a company is performing right now, what it needs to do in the future, and how much money it should raise are all natural. In fact, they’re signs that there is a healthy relationship between founders and existing investors. If everyone agrees on everything, this signals that the company culture either doesn’t promote debates, or that the company is putting on a facade to attract new investors. Both are negative signals.
For these reasons, when an investor who is researching one of our companies asks for my thoughts about the company, I share my candid thoughts on each of the startup’s performance, its future plans, and its fundraising. These thoughts are often aligned with those of the founder because we’ve talked about these issues before and arrived at reasonable conclusions that we can all stand behind.
However, sometimes there’s a disagreement between what a founder believes is best for the company and what I believe. In these cases, rather than conceal the disagreement, I share it with the potential investor. By doing so, we not only earn their trust, but also prompt a discussion around the issue together with their participation. This is exactly what’s necessary to see how we would work together if we were to become partners, so it’s a very valuable exercise for all parties.