Fundraising from investors may initially be a way to raise the capital necessary for bringing the company forward. But in most cases, the relationship between entrepreneurs and their investors extends beyond the chequebooks, often it is even described as a sort of ‘marriage’. And with investors often having a wealth of valuable experience, their advice and guidance can be critical to the success of a startup. Read on to learn what this relationship can look like and how to make it work!

What to know about effective relationships between investor and entrepreneur

Clear Ground Rules and Expectations

Before the relationship can even start, both sides should convey clearly what they look to gain from it. In large parts, formalities are agreed upon in shareholder’s agreements and contracts, which should already make sure that there will be no nasty surprises for either side further down the road. Entrepreneurs and investors should also agree on the nature of their relationship, when can you reach each other and to what extent is the investor prepared to act as an advisor? What risks is he prepared to take? An agreement like this should be the foundation of all that is to come and can avoid unnecessary stress and conflicts later on.

Shared Passion

Sharing a passion for what your business is doing can be the first and most important bridge to build. It can even be the one that brings the investment about in the first place, as Daniel Ross points out. He outlines two types of Angel Investors: the successful ex-entrepreneurs who are now looking to support the younger generation in their ventures, and angels from an older generation that are passionate about a cause, such as green energy or alleviating world hunger, who aim to make a positive impact by investing in the right startups.

Frequent Communication

As in any relationship, communication is key. Entrepreneurs should keep their investors in the loop. And whilst they should keep them updated at all times about a set of Key Performance Indicators, it often pays to go beyond that and inform them of other noteworthy developments. They will be happy to hear about new partnerships and clients, but most importantly, they can offer valuable guidance if the company hits roadblocks and new challenges. Conveying both good and bad news as they happen also allows investors to make plans and re-evaluate because after all, it is their money keeping the company afloat. Investors, on the other hand, should also be honest about their concerns and decisions affecting the company.

Respect & Trust

No relationship can work well without respect. In the case of investors and entrepreneurs, this means respecting each other’s areas of responsibility and most of all, trusting each other to do their jobs to the best of their abilities. For entrepreneurs, it’s important to not only ‘deal’ with their investors as annoying necessities but to engage with them and appreciate their expertise. As an investor, it is important to trust the entrepreneur to lead the company. When buying into a startup, one of the first things that should be evaluated is whether the investor trusts the entrepreneur and his team to make it successful, and if that’s the case, it’s counter-productive if the investor tries to replace the CEO. Differences of opinion should be discussed at eye level.

Now that you’re an expert on building a productive investor relationship with a startup, check out these inspiring Dutch startups looking for an investor like you!