Attracting, convincing, and carving out a mutually acceptable agreement with an outside investor is a slog, as we’ve mentioned in previous weeks. However, after you’ve both signed off the agreement, it’s time to knuckle down and start making money.
Unfortunately, disputes between investors and entrepreneurs are all too common, and can derail otherwise-promising business. It’s natural in business for right-thinking people to have different ideas and approaches to everyday challenges. It would also be exceedingly optimistic to imagine that everything will go to plan in your business, right up until you and your investor make a pile of cash exiting. How you deal with setbacks and unexpected events defines whether your relationship with an investor is a happy one or a disaster.
In responding to setbacks – indeed, in day to day management of investor relations – the most effective thing you can do is keep investors in the loop. Nothing erodes trust in a business partner faster than learning of important developments long after you should have. And different people can have wildly varying interpretations of what constitutes an important development.
That’s why we advise investors and entrepreneurs to agree set times for a meeting or phonecall to catch up on developments. Some investors will be very hands-on and keen to come in every week, while others will want little involvement in the business. All, the same, hammer out a schedule whereby the investor gets information and input on the day-to-day events in the business – and stick to it.
Stick to Deadlines
If it’s important for you to honour commitments about communication and feedback, it’s just as important for your investor to stick to the bargain as well. Most agreements between investors and entrepreneurs allow for finance to come in tranches at agreed dates. If these deadlines are missed, that’s a serious issue, and has to be tackled head-on.
You’re entitled to notice if a tranche of funding is going to be late and, without rushing to the lawyers immediately, you have to impress on an investor that this is a serious issue. Unless you insist on getting funding when it’s promised, your investor will run rings around you. This is why your agreement should include terms covering what happens if each key deadline is missed.
Don’t allow Re-Writes
Similarly, if either you or the investor starts to change the agreement on the fly, things go sour very quickly. One party – or, more likely, both – soon starts to feel hard done by as a mutually agreeable is torn up and different goals are pursued in research and development, marketing and personnel.
Chances are, for example, that your investor agreement covers the use of the funds the company receives. Too often, a businessperson will see a change in the market and look to use money in different ways – to do so without a proper consultation (and ideally a new agreement) will sour relations fast. Stick to the terms of your deal, and don’t make decisions that run contrary to this without an investor’s consent.
Successful investor relationships are built by straightforward people management, with a dollop of organisation and professionalism thrown in. That makes it sound easy when, in reality, it’s a difficult balancing act – especially when you’re trying to build a successful business. But if you’re disciplined and conscientious, there’s no reason why you can’t enjoy good relations with your investor through the ups and downs of business.
We deal with many businesses and investors, from the early fact finding stages to managing ongoing business relationships and adapting to a changing environment. If you’re at any stage of the process, and would like some advice on how to approach it, please contact us to set up a free initial meeting.
DCA Accountants and Business Advisors.