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The founder-investor relationship – how to make it work

March 28, 2022

Many founders admit they have a love-hate relationship with VCs. They describe the  founder-investor relationship as complex, difficult, some even say hostile. But VCs aren’t and shouldn’t be the enemy. There is a way to make the founder-investor relationship work. 

When we think about a fruitful and supportive collaboration between a founder and a partner in our experience, we can’t help but notice the strong connection between Eleven’s Partner, Vassil Terziev and Payhawk‘s CEO, Hristo BorisovWe managed to catch both of them during a longer car trip a few weeks back and get their take on the formula for a great link between a founder and a VC. What they both did to nurture this relationship, how to resolve the conflicts and challenges together, and what is their advice to both founders and investors.

The basis

Vassil and Hristo have established a close and strong connection throughout the years. The defining factor and what really helped in their case (which is not usually present in most cases) is that they have worked together for 10 years as colleagues at Telerik (co-founded by Vassil and later acquired by Progress Software). Having a long work history, they have gone through numerous challenges and have experienced most of the difficulties in growing and nurturing a relationship during these early days. Later on, when they entered their new roles, they had clearer expectations, they knew each other’s working styles, characters, and values. Having respect for each other, it was easier for them to build up on this basis and grow the relationship in the right direction.

“Something which really helps is the fact that I am an entrepreneur myself and have a high level of empathy with the founders.”
Vassil Terziev
Partner at Eleven

Most of the VC partners are coming from a financial, management consulting, or investment banking background. So their level of empathy with the founders is lower and they work with pattern recognition rather than a deep understanding of the problems that have to be solved. “The fact that I have an entrepreneurial background helped us step on a different and more stable basis. We were able to have more open and honest conversations from the very beginning and say the difficult things that have to be said easier”, Vassil says.

Aligning values and expectations

The mindsets, values and expectations of investors and founders can be profoundly different. But according to Vassil, the alignment of values is the most important factor for the relationship to grow in the right direction – short-term vs long-term thinking, straightforward vs “behind the back” board politics, active help vs blame distribution. When there is a misalignment in the values, it manifests very soon and leads to headaches for both the founder and the investor. 

So the first step when entering the founder-investor relationship is to align your values and set up the right expectations, communication, and working process. The second step is the alignment of the risks and the opportunities from both the founder and the investor’s perspective.

“You have to be absolutely honest, open, and direct from the very beginning. For me it was really important for the investors to understand both the opportunities and the risks.”
Hristo Borisov
Co-founder and CEO of Payhawk

For investors, it is important to remind themselves constantly that the founder is the star of the show. It all begins and ends with the entrepreneur and his/hers vision. Unfortunately, many times we see the opposite – investors decide to act like entrepreneurs and as if they are the ones leading the game. Then they try to impose their vision on the founders and tell them what to do, expecting for them to execute. However, only because the investors have given them funding and have some rights, doesn’t change the fact that the founders are the ones leading and building the company and investors are fully dependent on them. Partners shouldn’t misuse their rights.

Tackling the challenges & conflict resolution

Building startups can be messy and hiccups are inevitable. So how can the founder and the investor tackle the challenges along the way together? According to Vassil, the first step is to accept that there are topics on which you will disagree and have different opinions. So before hurrying to tell the other person that he is not right and he doesn’t understand, try to understand first. 

“Disagree and commit - give your advice, say what you have to say, do whatever you have to do but support the founder nevertheless.”
Vassil Terziev
Partner at Eleven

Honesty and integrity are the foundation. Showing things the way they are, no sugarcoating, and accepting the good, the bad and the ugly. You are investing in imperfect people, imperfect companies, it can be messy and ugly along the way and that’s okay. The most certain way for things to go wrong is to avoid difficult conversations.

And you will come across many difficult conversations. But at the end of the day both sides have to be certain that they are doing the right thing and reach an agreement as a team. For the entrepreneur, who has plenty of issues and pains to deal with, the two most unnecessary problems are to 1) Fight with his team, and 2) Fight with his investors. The focus of both the founder and the partner has to be on creating value and winning the market. 

“What I really enjoy about Payhawk’s board is that everytime I walk out of a board meeting I feel smarter. There has been a fruitful discussion, building up on the opinions, everybody has been proactive in the conversation, and we have taken the best decisions for the company”, Vassil shares.

The founder-investor dynamics

For Hristo, one of the most valuable ways a VC partner can support the founder is by giving him/her answers to the many unknowns and bringing him down to earth. Entrepreneurs are very insecure and at the same time have too many decisions to make. So the goal is for them to make sure that they are taking the right decision by having the opportunity to explore different positions and opinions, without having to persuade the investor in their point of view.

“When raising the seed round, the most important thing for me was to create a board. I was missing a place for discussion, for constructive feedback, for someone to show me the right approach and also to keep me down to earth.”
Hristo Borisov
Co-founder and CEO of Payhawk

According to Vassil, an important aspect, which predetermines the dynamics between the good partners and entrepreneurs is to perceive the founder as an “elite racer”. To establish a setup for growth, to motivate the founder, to help him and inspire him to give the maximum he can. But this also comes with the responsibility not to overstrain him. Investors shouldn’t be irrational in their expectations and requirements. Just like in school, you need to give time for the students to learn and grow. With founders and their companies’ growth is the same – it is important to know when is the right moment to push and when to give them a hand. 

One unwanted characteristic to look out for in an investor is that they either clap when everything is going well, or ignore and criticize the founder when things become messy or the numbers don’t meet the expectations. Unfortunately, many investors choose the more convenient and easier way to go and are not there to prepare the founders for the moments when things get tough. They are not there when they are truly needed. So look for active investors and not “wine and dine” heroes.

Nurturing a meaningful founder-partner relationship takes time, commitment from both sides, honesty, and integrity. It sounds complex, but once you have the correct attitude and commitment from both the entrepreneur and the VC, the journey of building a great company will be much more enjoyable. 

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