INVEST IN YOUR INVESTOR: The Startup?—?VC Dialogue

Life presents us with difficult choices at all junctures. It is the learnings we take away from our choices, which define our future actions and standing. One such important lesson I recall is from my time as a CEO of a start-up in Silicon Valley. I clearly remember the day when my excitement over signing my first round of funding fell flat at the news of my CFO’s unanticipated exit. He had been an equal participant during all the negotiations and had played a vital role in dealing with our investors. His unforeseen departure could potentially bring under scrutiny the stability of the venture and our preparedness to face uncertainty.

Stuck between a rock and a hard place, I could either impart the news of his imminent departure to my investors and very likely lose the deal, or withhold the information till I received the funding and deal with my conscious oversight to communicate a very crucial piece of information.

Weighing my options, the ramifications of the investors finding out the truth from external sources fully dawned upon me.

The two critical questions that I asked myself at that point, which entrepreneurs should seriously consider if they find themselves in a difficult situation, were, “Is this information material?” and “Can it affect the investor’s decision in any way?” The answer to both questions was an unequivocal yes, and that was the deciding factor for me to go ahead and reveal the truth to my investors.

Yes, the funding got delayed. Yes, there were additional rounds of talks and formalities that had to be completed, but what stood unblemished were my reputation and my credibility.

Whether we are an entrepreneur or a venture capitalist; we have to deal with relaying difficult information to our stakeholders; communication which can potentially ruin our best-laid plans. When faced with a hard choice, it is only human to have the urge to procrastinate. However, procrastination can more often than not cause further irreversible damage, both to relations between the parties involved and to the situation at hand.

In my experience, honest and transparent communication has worked well to defuse situations that can potentially become the cause of friction between entrepreneurs and investors. Most people do not intentionally want to withhold or hide essential information. It is the fear of being judged for their mistakes, the fear of losing support or the disinclination to face consequences, which makes them hesitant. Aided by a plethora of doubts, a gradual but a lasting reluctance to communicate makes a home within a person. In case of entrepreneurs, failure to communicate to their investors about a delay in product development or piling up of liabilities is a case in point.

In my case, because of being properly informed, my investors were receptive even to bad news. Their confidence and trust in my ability to communicate through rough patches won me their lasting support. Maybe I could have feigned ignorance and avoided the delay in funding, but that would have set me on a different path for a lifetime. The choices that you make in the present, decide your future actions and standing, and a strong communication outreach based on well crafted messages is what I stand for.

Disclaimer: The article is the independent opinion of the author and does not represent those of Kstart or Kalaari.