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Avoiding Clashes Between Investors and Founders on Cleantech Company Boards

Investors and founders on cleantech company boards don't always see eye to eye. The founder has a specific vision for the business that he or she wants to see enacted. At the same time, investors have their own plans for the business. Where, exactly, do those clashes come from — and how can you help your business avoid them?
cleantech investors and founders

 

Common Causes of Clashes Between Founders and Investors

While not every clash between founders and investors can be attributed to these elements, you'll find that in many cases, clear clashes between the two can be related back to these elements.

1. Founders often become highly emotionally invested in their startups.

In the cleantech industry, this could, for example, start with your excitement over your new idea: something that has the potential to revolutionize clean energy, enable the circular economy or expand clean energy into a new market. You've invested a great deal of time, energy, and hopefully your own skin in the game. You may have new ideas in mind. You're deeply emotionally invested.

Your investors, on the other hand, aren't.

They're looking at your business from an objective perspective. They care about the numbers. While, in the early stages of fundraising, you were all focused on potential, as your business grows, your investors want to see genuine results. If you aren't producing those results, it may cause a clash between you and your investors — and that can leave you struggling to get future funds or feeling as though board meetings are an exercise in futility.

2. Investors are highly results-focused.

Ideas, unfortunately, are a dime a dozen —especially in energy, where people and businesses are constantly looking for new ways to cut costs or expand what you can offer. Your investors are looking for something that will help set your business apart. In the early stages of fundraising, that could mean a well-developed idea or proof that your idea has the potential to accomplish exactly what you say it can.

In the later stages, on the other hand, that means displaying clear results: a concept that you've been able to put into development, growing sales, or improved business, depending on how far you've managed to develop your efforts. If you're not able to display those results for your investors, or if you aren't generating results fast enough — or if, in some cases, you aren't delivering on the promises you made in those early rounds of investment — your investors may become harder to deal with.

As I say often, being early is equivalent to being wrong. Based upon the time value of money, being early means that there are better investments to be made elsewhere. The market may not be ready despite your beliefs...

3. It's all too easy for entrepreneurs to get ahead of themselves.

Because you're so emotionally involved and so deeply invested in your business and the advances you're hoping to make in clean energy, it's easy to get ahead of yourself. You've had a few minor successes, so you're ready to go barreling full speed ahead — and your investors are the only thing that's holding you back. If they would just get on board with your plans, you would be able to accomplish so much more!

In reality, however, it could be that you, as the entrepreneur, are rushing things a little. Just because you've been successful in one stage, it does not necessarily follow that you will immediately be successful in the next, especially without adequate planning.

And please read my article from early July about the waves of dead ideas lining the cleantech yellow brick road.

How to Avoid Clashes During Meetings and Beyond

 

avoid clashes between investors and founders Take turns steering, but make sure you and your investors are always going in the same direction.

 

As a founder or entrepreneur, it can be incredibly difficult to keep your cool when it feels as though your investors just aren't getting on the same page with you during negotiations. At the same time, it's critical that you maintain a good relationship with your investors, not just when you have another round of fundraising coming up, but as you work to build your business and, hopefully, produce the results your investors expect. Try some of these strategies to help avoid clashes with your investors.

1. Remember that you have the same ultimate goal.

Ultimately, both you, as the founder, and your investors want your cleantech business to succeed. You may have different reasons for that desire — your investors are probably more committed to seeing your business make the money they were counting on when they chose to invest, while you're likely more emotionally invested in the solutions and effort you've already put into the business. But ultimately, you're trying to achieve the same thing: a business that can create and maintain a place for itself in the industry. One of the first terms I ever learned in business school was the concept of a going concern.

According to Investopedia, "Going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company's ability to make enough money to stay afloat or to avoid bankruptcy. If a business is not a going concern, it means it's gone bankrupt and its assets were liquidated. As an example, many dot-coms are no longer going concern companies after the tech bust in the late 1990s."

No one wants to see your business fail. When your investors do offer advice or even criticism, they're hoping to help you meet your goals.

2. Listen carefully.

Because you're so emotionally invested in your business and its outcome, it can be difficult to simply listen during a meeting — especially if you're passionate about the changes you're hoping to make in clean energy or you're hearing criticism. Instead of reacting automatically, often with frustration or anger, take the time to listen to what your investors are really saying. If needed, think it over before issuing a response. Often, you may find that your investors have some great suggestions or some great reasons for holding off on specific advancements or funds. Before you can make that realization, however, you must often disconnect from the discussion emotionally and take a closer look at what has really been said. And according to one of my trusted colleagues (who often needs to remind me of this), do not shoot off a half-cocked email... (seriously, don't).

3. Showcase your successes.

It's important to keep your investors' perspective at the forefront whenever you interact with them. While they are partnering with you and invested — particularly financially speaking — in the success of your business, they do have a slightly different perspective than you do. When interacting with your investors, especially if you need approval for spending or need to embark on another round of fundraising, point out your successes.

You can do this obviously — starting the meeting with a series of announcements about what you've accomplished since the last time you came together, for example. Alternatively, you can point out your successes more subtly, delivering that information as part of your request for the future. The important part, however, is for you to communicate your successes with your investors, ideally in a form that they can easily understand. Is your business starting to generate more sales? Are you able to broaden your market? Showcase the progress you've made in a format that speaks to your investors to help them on board with your future efforts.

While the purpose of this blog is to help you manage your emotions, indirectly, I am trying to tell you to manage your investors by using data. In the words of Ben Shapiro, "the facts don't care about your feelings." If you can show meaningful metrics about the positive traction of your startup, it is hard for investors to doubt.

4. Generate a solid plan before asking for future funding or to take the next step.

Sometimes, your investors may balk, not because they think that you aren't capable of succeeding or that your plans won't bear fruit, but because you don't have a solid plan to present to them.

You have goals, but how are you going to accomplish them?

You want to move forward with the next steps. What do those steps look like? Where are the funds coming from? What profits do these steps have the potential to generate?

Your investors want to know that you're being a good steward of the funds they've already invested and that you will continue to show good stewardship of future funds invested in your business. Before you jump in and start trying to rush forward, create a clear plan of action that will help show your investors exactly what's coming next and how you plan to implement your next round of changes.

This may seem obvious to all of us; however, I have also seen really good entrepreneurs ask for more money (even for a 4-year runway) without any plans on how they are going to survive over the next few quarters.

5. Take things one step at a time.

When you start seeing successes, you're often eager to jump ahead. (There's that emotional investment getting the better of you again.) While it's not a bad thing to be eager and excited about your cleantech advances — after all, you're investing a large chunk of your life into these efforts — it's equally important to understand the process and follow it.

Entrepreneurship isn't about waving a magic wand and making your business work. It's about the effort you put in day after day, sometimes year after year. You can't skip steps, nor can you ignore the process. Instead, you must follow the right steps. Your investors will be much more likely to get on board when you follow the process — and in many cases, you'll find that simple willingness to follow that process can make it easier for you to meet your overall goals.

6. Utilize investor advice.

If you want to create a more effective relationship with your investors, take advantage of the advice they're giving you. Remember, you're all on the same team here. In many cases, your investors are offering solid advice and perspective on many of the issues that may crop up with your cleantech business over time. Take advantage of that advice. Use it. Look for ways to implement investor suggestions, especially those that do not involve excess funds. You'll find that when you're willing to listen to your investors, it can often transform your overall relationship with them and make them more likely to trust your desires in the future.

Developing a strong relationship with your investors is often critical to your overall success — not to mention what it can do to reduce your overall frustration. With these steps, you can often make your meetings a little easier and that relationship better overall. If you have other tips for strengthening the founder-investor relationship — or there are other common conflicts I need to weigh in on — let me know about them.