Advice

What Can Go Wrong in the Process of Working with an Investor

If you are able to form a positive relationship with your investors, you can collaborate with them to create a successful business, leading to good results for both of you. The downside to bringing on an investor is that you’ve signed onto what can be a complex relationship. Investors want to assure they get a good return on their investment. At times, that can lead to conflicts in your relationship with them.

Obviously, no entrepreneur wants investor relationships to go south. That’s why it’s important to recognize what could go wrong. If you see the signs early on, you can take action to ensure the relationship stays positive while still maintaining control over the direction of your company.

Take a closer look at these red flag situations that could indicate that something is going wrong.

They Bristle at You Working with Other Investors

Working with more than one investor is a good business decision. You are less likely to suffer if a source of funding falls through. You’ll also get advice and feedback from a variety of sources. It’s also your absolute right to seek out and work with multiple investors.

Communication with firm professionalism is key here. Remind the investor that they have not formed an exclusive agreement with you. Then, get to the bottom of things. Are they concerned about a conflict of interest? Are they interested in a larger stake?

They Try to Force Staffing Changes

Presumably, you have a lot of faith in your team. Most founders take the time to carefully handpick people who work well with them, share their vision, and bring something valuable to the table. In addition to this, it’s fairly common for startup founders to bring friends and family members on board.

Unfortunately, you may find yourself in a situation where your investor doesn’t share your faith in one or more of your team members. They may ask you to fire one or more staff members, change their roles, or simply hint that they are unhappy with your staff.

This can certainly create an awkward situation. Ultimately, you can and should maintain control over who works for your company. When you make staffing changes simply because an investor says so, you can kill morale among your staff. Worse, you may feel as if you are being cooperative, but the investor might see your compliance as a weakness.

Now the hard part. While you should make it clear that you get final say so, don’t shut down your investor without having a conversation. Talk with them. Get a clear picture of their reasoning. It’s possible that they are entirely off base, but you should be open to the idea that they are seeing something from a perspective that you aren’t. Loyalty to your team is important, but there are times when you may realize your investor’s instincts are correct.

Your Investor Tries to Control Your Business

Many investment deals involve giving an investor a stake in your business in return for their money. That means silent partners are very rare. As you might imagine, investors will want their fair say over your business decisions. That’s fine until they try to exert too much power.

When an investor interferes with your business decisions, attempts to change your processes, or otherwise over flexes their muscles, it’s time to take action. You don’t want to lose your business to an investor who wants to make a power move.

There are a few things you can do to help here. First, keep meetings focused on strategy, OKRs, and updates on the state of your business. If your investor attempts to pull things off-topic or deflect attention onto themselves, you must steer things back on course.

If things go south, you may need to have a sit down with your investor. Come to an agreement that board meetings and discussions that occur in front of the team must focus on strategy. If there continue to be conflicts about the role the investor should have in making business decisions, you will need to have a discussion about that. However, you should make it clear to the investor that this should not be brought up during board meetings or strategy sessions.

They are Losing Their Enthusiasm

Not all investor issues involve power plays or attempts to shut out other investors. Sometimes, you may notice that an investor appears to have a change of heart about your business. That’s a problem, as you need investors to remain committed to your business beyond a financial role.

A disinterested or disillusioned investor may not say anything to you directly. Instead, they may simply check out. They might miss meetings, or express their dissatisfaction to others.

Again, open communication is key. Encourage your investor to level with you. Have they lost faith in you? Are they spread too thin? Is there something about the current trajectory of your business that bothers them?

Work with your investor to solve any problems you can, but don’t be afraid to stand your ground. Make it clear that you aren’t going anywhere should it become evident that their issue is with you.

Final Thoughts

It benefits both you and your investors to have a positive relationship. If things begin to go wrong, it is imperative that you get things back on track. In most cases, this can be done through open and friendly communication. However, there may be instances where you have to stand firm about something. Of course, the best course of action is to prevent issues from occurring ahead of time by ensuring that the terms of your investor agreements are clear and agreeable to all involved.

 

Author Bio: Angela Baker is a true self-starter. She is a blogger and freelance writer who has been published at Top Essay Writing, Classy Essay, and Be Graded. Never own to rest easy, she is always finding ways to improve her writing, grow her career, and learn new things. She hopes that her readers find inspiration in her writing to continue to grow as well. Angela enjoys playing table tennis, and regularly contributes her thoughts to LiveInspired magazine.

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