How to build a winning relationship with angel investors
A startup’s relationship with angel investors is like a minefield - one wrong move can end the game.
Startups put in immense efforts and hard work in pitching to potential angel investors to bring them on board. But the work does not end there, they are going to be involved in the functioning of the startup in some capacity.
Experts nearly one-third of the startups shut down because they do not know how to plan and utilise their finances leading to investors losing interest and trust in the startup.
A startup’s relationship with angel investors is like a minefield - one wrong move can end the game. A strong relationship can help the startup grow and come out with flying colours. It is, therefore, extremely important to maintain a working, productive and winning relationship with them, even if not a friendly one.
Below are a few pointers on how to build such a relationship with your angel investors.
Establish boundaries and expectations
The most basic and important step to build a productive relationship is establishing expectations that the startup and angels have of each other. It is equally important to define the nature of the relationship, setting boundaries, the degree of control, vision, the scale of growth, and exit strategy that is acceptable to both parties.
Having a shared vision and passion is important too as it determines if you and your investors are on the same page. No one wants to be met with unpleasant surprises, frustrations, conflicts, and disappointments during the course of work.
One of India’s most sought-after angel investors, Rajan Anandan, talks about having a shared vision and passion.
“In my first meeting… I try to get a sense if this is the founding team that can run the distance for 10-15 years. Do they have energy and the chemistry? Are they interesting? Tshe reality is I have to probably talk to them for a decade. And because I tend to invest in things I understand deeply, in half-an-hour I can ask the five questions that matter. By the seventh question, if you are still with me, it means at least you know your business. Which is why I don’t invest in things I don’t understand because I have no idea what questions to ask.”
Mutual trust and respect
A strong relationship is always built on a foundation of mutual respect and trust between the parties. Startups must respect their investors’ opinions, feedback, and suggestions. Even when they disagree, they must behave respectfully towards each other and discuss openly to arrive at a mutually acceptable solution. To elicit trust from investors, the startup must continuously engage with them rather than treat them as an impediment that needs to be dealt with.
Paytm, one of the largest fintech companies in India has seen an exponential rise in a short span of time and its current valuation is around $10 billion.
It has had three successful funding rounds and has raised billions of dollars in funding. Its founder, Vijay Shekhar Sharma, insists that it is important to nurture trusting and respectful relationships with investors for better outcomes.
Keep them in the loop, be forthright
Angel investors expect that they are kept in the loop and regularly updated about progress, latest figures and charts by the startup team, without having to nudge them to do so. A day-to-day briefing is not necessary but a weekly update and a monthly report apart from other important/noteworthy updates will elicit trust in the investors. Even when there are failures or issues, if you are forthright with your angel investors, they will appreciate it and help you with their expertise. Keeping open and honest channels of communication with the angel investor will help build a positive image of the startup.
Listen and value their inputs with a pinch of salt
Investors can provide crucial insights and inputs from their expertise and experience. You do not need to incorporate or agree with all their suggestions but even listening to and valuing them will give the investor a sense of validation. When there are more than one angels, there is bound to be strong and conflicting suggestions. Startups should them listen to all of them and learn to politely refuse what does not fit their bill.
When investors have underlying concerns about your operations, plans, or any other aspect of the business, you should make a conscious effort to address those concerns through an open dialogue and reasoning.
Challenge one-another (in a healthy manner)
Challenging one another in a healthy and constructive manner will help in cementing the relationship between you and your investor while also helping the business grow.
Be a lion, not a lamb
Lions do not sugarcoat or beat-around-the-bush, they are go-getters who are result-oriented and enjoy challenges. Even their reports are concise and to-the-point without the frills and fluffs and leave it to the investor to decide on when and how much of the funding to release. Lambs believe in meeting the investors regularly and sending regular reports, whether or not they have results. Being a lion will help in building a winning relationship with the investors. A case in point is
Zomato, one of the largest food guides of the world. Its founder, Deepinder Goyal, who has been a lion in his relationship with investors and potential investors, demands fair deals and treatment from investors, is averse to being pushed around and has always looked to maintain a healthy two-way relationship with his investors.
Quoting him, “Our investors are generally supportive, proactive, and trustworthy. They invariably bring new perspectives, which are different from mine. So, we treat them as advisers, and not as bosses. A lot of other founders I know treat their investors as bosses, not advisers or allies – and that leads to a very unhealthy relationship between founders and investors.” Zomato has had over 10 funding rounds, has raised over $450 million in funding and has a valuation of $1 billion as of 2018.
Building a productive relationship with your angel investors will go a long way in helping your business grow and flourish.References
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)