The partnership between an investor and an entrepreneur is akin to that of a marriage bond. That is to say, that relationship depends upon the double pillars of trust and honesty.
Building trust is not a one-off thing, but it takes persistent efforts, and patience is the critical ingredient.
Like a marriage-an investor-entrepreneur partnership has its own share of challenges and needs full commitment and relentless endeavors towards a common goal.
Even if there is a slight souring of the relationship, it directly affects the company’s growth. On the other hand, strong relationships increment the probability of success.
Trustworthiness can come across as a powerful utility that a startup entrepreneur can utilize within the realm of his organization and outside of his company. There is no shortage of examples of this sort in the business world, where trust has played a crucial role in the transaction.
And it applies everywhere. It can be either your employees, suppliers or customers. Trust is the bedrock of every business interaction.
Always remember that trustworthiness in you as a person, your company, and your brand is one such trait that would ultimately inspire loyalty.
Loyalty ensures that your company remains profitable in the long term. Hence, you need to be proactive and work hard to ensure that you and your stakeholders are trustworthy and can be relied upon in any situation.
This article is based on numerous investigations into startup entrepreneurs’ behavior. It pertains to how they behave during the starting conversation with a venture capital company or an angel investor. It is your behavior that can violate or build trust.
It also affects an investor’s decision to lend his support or not. Studies and investigations in this regard have demonstrated that trust-building behavior significantly enhances an entrepreneur’s chance to get capital. While those entrepreneurs who do not exhibit such traits that inspire trustworthiness fail to get funding.
Venture capital companies generally like to diversify their risks. To achieve this, they want to invest in unicorn companies-that is to say-such companies that will achieve multi-time valuation in the medium term. If investors invest in such a company that becomes 20-30-40 times what it was, it can make up for its other investment losses.
The relationship between an entrepreneur and investor keeps evolving if there is trustworthiness or a lack of it among those. For building trust, you need to follow certain postulates zealously. Herein I am listing those.
Honesty is the Best Policy
Dubai-based venture capitalist Dale W Wood is of the opinion, “Entrepreneurs must tell the truth, no matter how ugly it is. It is always better to be truthful than to fool others. Otherwise, you will soon realize you are fooling nobody but yourself.”
It will really help if you do not skip the bad news during your board meetings with investors. Make it a habit you always keep your investors in the loop regarding important company decisions, especially the bad news whenever you undergo scheduled meetings for sharing monthly or weekly updates.
If you remain honest regarding the testing times you frequently face and proactively seek their advice, it will definitely enhance investors’ trust. Do not forget that you are legally too required to share everything with your investor.
Sharing Milestone Updates With Probable Investors
If you keep on sharing milestone updates with your probable investors, it will ensure your startup shall remain current in its thought process. Also, keep in mind that sending emails in bulk would get you tagged as spam and can be ruinous for any future partnership with your investors. There is a very narrow boundary between sharing updates and spamming their mailbox, which you must clearly understand.
An update email could have the following format:
- Brief of your achievements for the stipulated period, which should not be longer than three sentences.
- Detailing of your primary achievement.
- A few statistics that demonstrate your growth.
- A brief paragraph on progress as compared to your plan and what next you propose to do.
- Clear synopsis of how investors can help you, such as fundraising, or recruiting, or something else.
Correctly formatted milestone updates could prove very beneficial for your startup business as investors can be kept informed, interested, and engaged with you. It will also help build trust.
Properly Researching Your Investors
Before you start approaching an investor, you should undergo proper due diligence by finding answers to the questions such as:
- Is this investor interested in my domain?
- Which stage of startup funding does this investor typically like to invest in?
- What amount of money does this investor typically invest?
- Is this investor capable of bringing other investors to the team?
It can easily take weeks to arrange a meeting with investors; hence one must be very patient and persistent. If an investor knows you very well, understands your requirements, and is assured that you can deliver what you have promised-in short, if he trusts you, he will surely invest.
Another factor that comes into play is validation. Investors generally like to know if other investors are investing in their company. That is to say; they want to know if other investors are trusting you, then it could be a valid proof of trustworthiness for him to move forward and your path becomes more manageable.
Inspiring Trust In Your Clients
To build a trustworthy partnership between a business and a client, an entrepreneur needs to work hard to build a reputation. One has to be very honest and truthful in all business dealings.
Only then can one trust your competence. Always keep in mind that overpromising due to fear of getting your bid rejected is a bad policy. One has to be honest and candid right from the start on what you can undoubtedly provide, what you might provide, and what you cannot offer.
Also, be very honest about the time frame in which things could be done. In short, customers should have an unmistakable idea of your core competencies. If customers can trust you, investors would not be too far away.
The ease with which customers can reach you for help shall be a deciding factor in building lasting, healthy, and good relationships with customers. If customers become your loyal advocates, the investor shall undoubtedly see this, and it will inspire trust in your business.
There is no magic involved in fundraising from an investor. An investor is not acquainted with you personally, is unaware of your personality, and is unsure if your business model is worthwhile.
Hence, he has to assess your business model in terms of statistics and future metrics and your personality. An investor wants to make sure if you are the right person to play his bets on. Hence, it is worthwhile to work on strategies that inspire trustworthiness, not only in your investors but also in your clients.