The Blade

We’ve all heard the war stories about greedy, pushy, over-the-top, controlling, and uncaring investors. In certain situations, these stereotypes have merit – founder/CEOs need love, not war. But what about investors? Do they need some love too?

I’ve started two startups and invested in seven others. Through these experiences, I’ve sat on both sides of the table. Founder/CEOs and investors have different wants, needs, and objectives. If you’re a founder, here are five attributes of investor-friendly founder/CEOs.

1. They have genuine concern about how investors will receive a return on investment. I know, I know – this one is obvious, but I’m amazed at how many founder/CEOs rarely, if ever, discuss how they plan to earn their investors a profit. Whether it’s through paying dividends or selling their company, investor-friendly CEOs openly explain to their investors their strategy for how or when they plan to return capital to investors.

2. They provide thoughtfully written shareholder letters. I don’t own one share of Berkshire Hathaway, but I love reading Warren Buffett’s letters to his shareholders. The neat thing about Buffett’s shareholder letter is that it not only offers the financial performance of Berkshire Hathaway, but it also offers how he runs his business. For example, Buffett’s 2017 letter states, “Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.” He also offers tidbits on the bigger picture in terms of how much potential his businesses have. For example, he says that despite the successes of Berkshire’s real estate brokerage business, it has room to grow: “Despite its recent acquisitions, HomeServices is on track to do only about 3% of the country’s home-brokerage business in 2018. That leaves 97% to go. Given sensible prices, we will keep adding brokers in this most fundamental of businesses.” So, whether it’s once a year, or once a quarter – send a thoughtful letter to investors, and I promise, they’ll read it with care.

3. They can effectively manage the diverse needs of various stakeholders. I admire founder/CEOs who have a knack for balancing stakeholder (owners, customers, employees, suppliers, community) interests…juuust right. It’s a VERY difficult job. My book, The Hockey Stick Principles, explains why. Fordham University professor Michael Pirson and Harvard professor Deepak Malhotra wrote a paper titled, “Unconventional Insights for Managing Stakeholder Trust,” which says that most organizations don’t do a good job of managing the disparate needs of stakeholders because “trust is multi-dimensional—and it is not obvious which dimension you need to focus on when dealing with any particular stakeholder group.” For example, trust to some people is “kindhearted benevolence”; to others it is “fair-minded integrity.” Or, building trust with one group can destroy trust with another. Too many founder/CEOs show too much bias towards one group over another – often leaving the owners in last place.

4. They update investors on important changes. I’m an investor in Vital Plan, and its founder/CEO, Braden Rawls, is an excellent communicator. For example, Vital Plan sends “Insider Updates” with its latest growth plans, sales updates, new product releases, new hires, job postings, and fundraising efforts. Furthermore, Braden takes the time to seek my opinions and ideas when important developments occur.

5. They track and explain key performance indicators (KPIs). There are arguably too many KPI buzz words that infest the startup world – customer acquisition cost (CAC), lifetime value (LTV), conversion rate, customer retention, monthly active users, and dozens of others. But, actually, these metrics are important for investors to understand. But investors are also interested in KPIs that are specific to your business – or how you apply those KPIs to your business. For example, my company, Vertical IQ, sells industry research subscriptions to banks – so if we lose a customer, we track why they leave us – and pull KPIs for those.

Of course, there are many other attributes investors care about, but to my mind, these five stand out.

The Partnership Must Go On

I love how Forbes contributor and investor/entrepreneur, Todd Hixon, summarizes the founder/investor relationship in, “The Founder/Investor Partnership Is Complex; Here’s How To Make It Work”:

“Founders are athletes on the playing field: great operators with a strong strategic sense. The best seek advice broadly, make prompt decisions, and deliver great results. Investors are coaches: the best know how to give advice and nurture talent, and they know to not try to run the business. Investors who have been founders have an advantage of empathy for and credibility with their founders. But they sometimes take too much control and rely too much on what worked in their start-up.”

Well said, Todd Hixon. Yet – easier said, than done. But still doable.