A journey that begins with emerging entrepreneurs looking for capital support to grow their company and established investors tapping into this potential, soon transforms into a tug of war of interests as the life cycle of a startup evolves.

While startup founders often want to focus on their product and vision for the company, investors are likely to be keen on accelerating growth and returns. However, as the startup and VC investment ecosystem broadens, the relationship between the two is also becoming more nuanced. As we learned over time, great investors bring more than just capital to the table. They arrive with an army of support in the form of advice, specific industry knowledge and experience, access to a wider investor network, a global talent pool, and the right tools to enable large-scale transformation. This makes it even more vital for founders and investors to be on the same page, right from the beginning. Having value-aligned investors they can rely on can empower founders to scale at a pace they want without compromising on the collective long-term vision.

Investing in the relationship: A job for two

Recently, one of Asia’s highly acclaimed tech startups was in the news for all the wrong reasons. The company’s tragic dismantling has brought into focus the pressing need for forging strong founder-investor relationships right from the beginning. It also highlighted the need for continued accountability and the perils of lax governance in a startup.

Unfortunately, this is not an isolated incident. Some of India’s biggest startups face similar challenges. Some well-liked/popular startup founders have been under public scrutiny for corporate governance issues/mismanagement of funds, and compliance/regulatory concerns. This is almost always a result of deprioritizing due diligence and corporate governance issues. It is a responsibility that falls on the shoulders of every stakeholder – the founder(s), VC investors, and the board.

This points us to the irreplaceable importance of building and nurturing a founder-investor relationship that is based on trust and transparency, instead of holding on to a transactional one.

We have summarized our 3 key recommendations below on how to get started:

• The founder’s responsibility

  Building investor relationships is (and should be) a priority for every founder. Once again, this is not just about raising funds. The first step in this process is finding the right investor—not the most popular or convenient one. With their hearts and minds set on the future, entrepreneurs must identify investors who understand their vision, are aligned with their values, and can help strengthen the startup. It is the founder’s responsibility to clearly communicate the long-term goals of the startup while also painting an honest picture of the present challenges, if any, individual strengths, and weaknesses. Leave no room for unwelcome surprises. This lays down the foundation for a solid investor-entrepreneur team.




• Moving beyond passion

  Investors want to see the passion and drive in the founders they invest in. While that is justified to a large extent, it is also easy to get carried away by the hype. This can prove to be detrimental to the health of the startup and consequently, the founder-investor relationship. While parameters like the founding team, funding stage, and the current set of investors, are important, each of these aspects also demands a deep first-hand analysis. Regardless of their track record and status in their field or industry, founders must be evaluated on their caliber to lead their business to success, their personal ethics, and values — are they willing to learn and grow, do they feel disempowered by sharing control? Answering these questions will help investors in their decision-making journey.




• The right start

  From business models to exit time horizons to valuations, misalignment of any kind can lead to conflict. Investors and founders must set clear boundaries and expectations right from the early days to ensure everyone is on the same page. Laying out their specific needs and identifying the role each will play in fulfilling them, can help eliminate ambiguity and boost accountability between both parties. In an honest founder-investor partnership there is no passing the buck, everyone takes ownership.

Mutual understanding is a must for the future of this collaboration

Startups thrive on change. However, a fast-changing business context can also mean changing targets. With an imbalanced founder-investor understanding, this can snowball into a bigger, irreversible crisis.

A mutual understanding ensures that investors understand the business, roadmap, and inner workings of a startup in detail. At the same time, it also allows founders to assess how they benefit from their investors.

The VC ecosystem continues to play a key role in enabling great ideas. It has been instrumental in shaping startups and paving the road to their success. However, this road is not without its challenges. What truly makes a difference is how investors and founders respond to these challenges, by standing together.