Venture Capital Funding

Relationship Advice For Entrepreneurs and Venture Capitalists

Written by Chris Martin for Gaebler Ventures

Sometimes entrepreneurs and venture capitalists get into fights like cats and dogs owned by an old married couple. Here's how to avoid those volatile circurmstances.

Mutual distrust. Passive aggressive behavior. Phone calls which turn into screaming contests. Constant stress whenever they meet or talk. Even engaging in secretive and destructive behaviors.

Relationship Advice For Entrepreneurs and Venture Capitalists

No, this is not a description of a dysfunctional romantic relationship. This is what often happens between entrepreneurs and their venture capitalists.

Maybe you've heard similar horror stories. Like when a venture capitalist tries to micromanage every decision the entrepreneur makes. Or when an entrepreneur freezes all communications with an investor because of personality conflicts. Or when a group of investors demotes a CEO in the middle of trying to secure additional outside funding.

Despite all of the potential pitfalls in the relationship between investors and business owners, one truth has never wavered: they both need each other in order for a company to succeed.

With that goal in mind, here is some "relationship advice" for entrepreneurs and venture capitalists.

For entrepreneurs:

Outline expectations – Early on in the process, sit down and spell out exactly what you expect from your business relationship. Don't use a "laying down the law" tone – just speak plainly about what you want. Set boundaries and establish guidelines. Also, be sure to set up regular times for updates on the company's progress and benchmarks by which you can gauge progress.

Don't be passive aggressive – This is one of the quickest ways to hinder communication with your venture capitalists. If you have a problem or issue with one of your investors, address it as promptly as you can. You don't need to be confrontational; just state your position and try to work it out. Letting concerns fester puts you in the express lane toward conflicts and quarrels.

Check your ego at the door – Chances are, if your venture capitalist can afford to front you some money, he or she has done a few things well in the business world. So don't assume you have all the answers. Listen to advice from your investors and consider their ideas. You don't always have to implement their suggestions, but you may discover a better way of overcoming obstacles if you keep your ears open to critiques.

For venture capitalists:

Stay out of the way – Here's a riddle: how are venture capitalists like doctors? Answer: the good ones always remember the beginning of the Hippocratic Oath – "do no harm." For investors, that means maintaining a hands-off approach to the day-to-day decision-making processes. Sure, the business owner may make a few mistakes, but if you thought highly enough of the entrepreneur to invest in his or her enterprise, then you should let him or her do the heavy lifting while you focus on the larger strategic picture.

Respect the chain of command – Know exactly who your liaisons are with the business and talk only with them. If you have an issue with accounting, don't call the COO to voice your concerns. If an employee reaches out to you with a problem, bring the CEO up to speed before taking any action.

Just say no to loose lips – Don't make representations about the company to others without knowing exactly what you're talking about. Avoid letting sensitive information slip out to people outside the company. And never, ever go behind the entrepreneur's back in your dealings with the enterprise.

Keeping these suggestions in mind will help venture capitalists and entrepreneurs to live and work in blissful harmony. Well, okay… maybe that's asking too much. But doing so will at least keep communication lines open and lay the foundation for a successful business relationship.

Chris Martin has been a professional writer for the last seven years. He is interested in franchises and equity acquisition.

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