Collaboration in the success of Startups

Having a strong collaborative and mutually complimentary relationship between investors and founders is a basic requirement for the ultimate success of startups. While it appears to be a given default status ?and taken for granted expectation, in reality this is a cause of concern all the time and ultimate reason for the failure of many startups.

It might be a difficult point to accept for many that the relationship between Founders and Investors decides the fate of the startup but not many product or market related dynamics. The core reason for this is each and every step associated with product, market or commercial aspects of the startup are influenced significantly by the relationship between founders and investors.

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Both Investors and Founders initially take this very lightly as the sole purpose or aim is to raise funds by founders and to invest in a seemingly high potential opportunity by Investors. ?While there are many perfectly synergy based relations between founders and investors, equally there are multiple startups going through the strained relationship which is impacting the fate of the startup including the future of vast number of employees working in such organisations.

As someone who is associated with the sector and profession for many years now, let me highlight few aspects which are influencing the working relationship between the founders and investors. I trust people reading this brief article will do some introspection and if necessary, will do course correction which may ultimately help their own startup in unlocking the true value and potential.

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Founder Issues:

1. Consulting referrals

Most startups face this issue. Most VC firms have their own circle of consultants, and they are quite comfortable to work with these consultants. Like any other liking, here too sometime the liking will be for reasons beyond professional competencies like culture, language, ease of access etc. While there is nothing wrong to refer few consultants if they find existing consultants hired by the founders are not doing desirable job or founders seek the support, unfortunately many times, the investors keep bothering the founders constantly to engage such referred consultants. This creates a very basic level of discomfort as most of them comes at a multi” X” higher cost compared to the existing consultants hired by the founders. Barring few exceptions here and there, as mentioned above the competence of the proposed consultants is no different if not superior to the existing consultants. This created massive issue to the founders as the investors are of the opinion they provided access to superior better quality consulting resources to the company, whereas the founders are worried about the additional burn this will add. Also, since these consultants are referred by the investors, most founders will not be in a position to demand the deliverables with firm talk.

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2. Networking / New Investors connect

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While the intention of the existing investors is in a right spirit to extend the connect and ensure the startup is in the investing radar of more and more investors, realistically this consumed lot of time of the founders and CFO. Every time a new investor is introduced, they expect a proper presentation of the deck and discussion about the future etc to multiple people over multiple calls which consumes significant amount of time of the leadership team at the startup.

It really makes sense to introduce new investors if the startup is looking for fundraise in the next 12 months. But when the startup is not looking or need any funds for even for the next two years and currently adequately funded to build and still if you as a founder observe regular connects coming on the way to engage, this created lot of frustration and consumes sizable amount of time of the leadership. The reasons for existing investors introducing to other investor fraternity or peers could be due to multiple reasons.

a.????? The existing investors wants to reaffirm themselves that the startup they invested is doing right and on the right path.

b.???? They keep themselves in the radar of more and more LPs for their fundraising.???????????

Irrespective of reasons, this consumes the productive time of startup leadership when there is no need of funds in the near future and this in a way diverts the focus on key immediate areas of impact both operational and financial.

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3. Decision making

As mentioned above, while the intention could be to support the portfolio company growth, in reality the investors are ending up themselves deciding on many fronts for the founders. Since the decision is coming from investors who are not responsible for execution or end results, their perception will be totally different from founders who are tasked with responsibility of implementing the decisions and ensure the proper outcomes.

For Ex: Founders don’t want to spend too much money on a new product launch to ensure proper runway. Whereas the Investors believe the launch will give more visibility of their investment to vast majority of LPs out there and also probably to prospective customers, then investors softly influence the launch event from low-cost aspect in to multi crore mega event.

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4. Conflict of priorities

When multiple investors are involved in a startup, one will rarely see them driving the startup towards a common theme or direction. Some suggest driving quick growth, some for profits, some for doing sustainable things over a period, etc. Unfortunately, most of these asks are at time contrary to each other. This ensures diverting the focus of founders and end up doing too many things to satisfy all the investors and at the end nothing will be? achieved to the perfection on any single task.

5.Analyst involvement

?Analysts are critical part of analyzing startup performance and providing right information and insights to investors at right time. However, these days too many analysts with limited ?knowledge about the organsiation or its products keep poking the founders and leadership team all the time resulting excessive consumption of the time of the founders and leadership. Since these analysts works for multiple portfolio companies and not exclusive, their understanding is very top level or high level view about the organisation and this consumes significant amount of time of the founders to make them understand the performance.

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?Investor Issues

?1.???? Lack of visibility

One of the big challenges being faced by the investors is lack of complete visibility to things outside the published financials in spite of regular involvement.

Ex: New Product Development – Progress around the same and the adherence to the timelines committed to the launch during the fund raising, etc.

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2.???? Moving things

This is a recurring problem most investors face. Every time they meet the founders, they hear a new issue to address or provide support without having to understand what happened to the issues brought out in the previous meetings. This constant change or movement of things to be discussed and addressed makes many investors at times jittery rightfully.

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3.???? Single founder- Arrogance / Non Co-operation

Seen this in multiple places. When you have a single founder, the probability of investors experiencing helplessness at some point is quite common. Arrogance / threat of the single founder to give up when they face challenging questions on the performance is a common issue which gives sleepless nights to many investors. Having invested significant money and most of the money is already burnt without any tangible achievements being made, the investors are literally can do nothing in such scenarios except praying God. I personally seen this scenario in a startup and felt how helpless some of the most of powerful investors becomes in certain scenarios. Such scenarios seed the mistrust between the investors and founder permanently even though such scenarios arise due to emotional temperament as a trigger.

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4.???? Business Model

?Investors expect the business model to remain constant for a fair period as a benchmark to deliver post the fund raise. However, the constant adjustment of variables drives the frustration among the investors. The changes in key financial metrics in the business models often cause lot of uneasiness among investors.

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Having seen the different scenarios and points that spoil the mutual trust and collaboration between investors and founders, it is important to understand how one can mitigate these risky scenarios and support each other.

1.????? Investors must suggest the consultants only if the referrals are requested by the founders. Restrict yourself as investors only to the extent of citing the contacts and let the founders negotiate the commercials and deliverables directly with the consultants. Draw a clear line of communication and never involve measuring, assessing or justifying the performance of the consultants and these tasks may be left to the founders to handle.

?2.????? As a startup, its important to remain in the investors radar. However, set clear goals and road map along with founders when to meet whom at what level of business progress and this clearly enables the founders to allocate their time and sort out the priorities. Clearly explain the purpose of arranging these meeting and what synergies each investor can bring to the table for clarity and to avoid any miscommunication about the intentions.

?3.????? As Investors extend support to evaluate the thoughts and add rationality to the thought process of the founders. Once the various available options are evaluated in unbiased manner, please let the founders take the decisions and let them implement them. Once the founders decide on something, never keep bringing the discussion about the topics / choices excluded earlier. Rather focus more on supporting the founders on how they can together help to execute things more productively.

?4.????? As Investors, always understand there is a delta associated with not delivering as per the business plan. Always factor this risk while funding in terms of timelines and also scale of achievement. Both achievement and timelines of the commitments made by the founders could drastically change over the period. In such scenarios, always align internally among the investors before even reaching out to the founders. Its important to have regular meetings among the investors of the portfolio companies and exchange the thoughts and iron out the differences on either guidance or road map relating to the startup.

5.????? As per the famous proverb” too many cooks spoil the broth”, its important to limit the participants to analyse things. Its important that you ask the right clarifications to the founders and only someone who understand the business is assigned to analyse the operations. No point in engaging multiple analysts by various investors for a single company. Its important that major stakeholder investor assigns an designated analyst who shares the notes with other investors from his or her analysis. Since everyone gets the MIS reports too directly from the company, it gives scope for their own analysis which can be compared with the major shareholder analyst.

6.????? There are own merits and demerits associated with Single founder-based startups. So once you decide to Invest in a single founder startup , work more collaboratively in terms of building a? business continuity plan minimizing the risk for the founder as well as yourself as a investors. Align about the probable risks that the startup could face if the second layer of risk mitigation and business continuity framework is not established.

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The collaboration is constant effort that must be made by Investors and Founders. While the feedback can be constructive and objective oriented, it should not be driven by egoistic drives. Its important for both investors and founders to realize if the organisation dies collectively both the sides too suffers with collateral impact. When the organisation itself does not succeed, its foolish on either front to believe that he or she enabling other one to bleed. Either the success or failure both Investors and Founders will take their share without any miss irrespective of any attempt to pass on or claim the full credit.

Note: This article is intended to help the founders and investors to cement the collaboration without any mistrust. This is not intended to criticize founders and investors. There are exceptions to every scenario and not every point mentioned above will be applicable to every scenario.

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Please share your thoughts or feedback to : [email protected].

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