How investors can impress founders

Many entrepreneurs aren’t impressed by their investors. More than one-in-four founders said in a recent survey that their biggest external investor failed to perform above expectations in any area.

While that’s a disappointingly high number, it also reveals an opportunity for investors to stand out from the crowd. By better understanding what founders want, venture capital and private equity firms can improve their chances of winning deals and achieving their return expectations without wasting time and effort on things that founders don’t care about.

For example, there’s a huge disparity between investors and founders on the importance of building a relationship early. Founders rank it as the biggest contributor to winning deals, while investors rank it as a less important consideration when choosing an investment. And it’s a similar story when it comes to a fund’s brand/reputation.

Of course, it’s possible that founders believe their decisions are more rational than they really are. It wouldn’t be surprising if professional investors understand the psychology of  business owners better than the business owners themselves.

But that doesn’t mean there isn’t room for improvement. The fact that so many founders are unimpressed with their chosen investment partners clearly points to a problem. So how can investors do better?

What founders want

Entrepreneurs say that alignment of vision and purpose is the biggest priority when choosing investment partners, closely followed by access to a relevant network and industry experience. Other important considerations include an investor’s ability to invest in future rounds and support for international expansion.

Founders also say that having a good connection with their investors is much more important than investors seem to think it is.

Putting all of this together paints a clear picture of what founders want: a long-term partner who can bring expertise to the table and support the business as it grows. This lines up with the areas where founders say that investors are performing below expectations: business development, corporate development, sales and marketing.

Bridging the gap

To meet founders’ expectations and ensure a successful exit, investors should pay attention to what business owners say they want. Here are some key considerations for a relationship that satisfies both sides.

• Focus on partnership. Founders understand that investors expect a return, but a really successful partnership is built on shared values and respect. When founders and investors aren’t aligned on these aspects, both sides should have the confidence to walk away.
• Set expectations. Not all founders want an investor to be actively involved. There’s no one-size-fits-all approach. But there are bound to be tensions if the level of support isn’t discussed and agreed in advance. Ensuring alignment very early in the discussions will save everyone’s time and avoid problems further down the line. 
• Discuss exits. Investors should be transparent about the timeframe and target return of their investment, as this can have significant implications for the future of the business. Founders may not always ask about this, especially if they’re more focused on the partnership aspects, but very different return expectations can lead to significant disagreements on strategy. 
• Full disclosure. Sharing examples of investments that weren’t successful can help to build trust. Most founders will do their own due diligence, just as investors will, so being upfront can provide an opportunity to add context and demonstrate valuable lessons that have been learned.
• Be patient. As with marriage, rushing in too quickly can lead to regret. Taking the time to ensure compatibility will maximise the chances of a successful outcome.

There are no guarantees that any investment will be successful, but understanding founders’ expectations can go a long way to fostering a positive partnership. A healthy relationship built on mutual trust and respect will always have a better chance of navigating challenges.

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