Having received investment from a fund, startups often do not understand what place should fund take in the life of the project. Here are a few tips to help you avoid making mistakes while building relations with investors.

The fund doesn’t make the decisions, the entrepreneur does

Founders often lack leadership skills and they try to pass on the decision-making to the investor. Sometimes this is done subconsciously. In any case, doing so is dangerous - and it's not just the fact that decision-making is not the responsibility of the Fund. To make a decision, one must clearly understand the situation, it is necessary to have a large number of input criteria. An investor is not engaged in the operational management of the project. Therefore, his decision cannot be the final one, and when recommending something, it should always be stipulated that the recommendation can only help in a certain situation, that it should be adapted, it is necessary to ask around for more opinions before making a final decision. Forgetting how seriously startups can take their advice, funds inadvertently impose their point of view sometimes. Smart, confident businessmen do not behave like that. They ask for the opinion of many, but they make their own conclusions.

Important agreements must be written down

An investor has, as a rule, a very non-binding relationship with a project, but some formalisation is still needed. This is how, say, the board of directors of Acronis is held: after the meeting, all the important points and decisions are recorded in writing and sent through. This helps develop a clear position and avoid stupid questions like "Who is responsible for that?" Assumptions breed misunderstandings and conflicts. I have been several times in such situations: after discussing the development strategy with the entrepreneur, we for some reason understood the outcome of our conversation differently. As a result, he did something that he thought we decided upon. I have a different opinion, but since we did not record the agreement, proving something is now difficult. Therefore it is necessary to sum up the discussion (in writing), and after, draw up a report on the work that has been done. A written agreement, as opposed to an oral one, cannot be interpreted as ambiguously.

An investor must not undertake startup’s job

Some investors, especially early stage, might want to do something for the entrepreneur. They think that this way the job will be done more efficiently and quicker. This is a mistake - the startup must always lead, the investor can only assist. When I want to introduce a project to a potential partner, I organise the meeting. Later, I introduce them to each other via e-mail - without much context. They start to talk and negotiate without me. If I were the negotiator, I would have done a better job, sure. But then I would have killed the founders’ motivation, and soon it will become necessary to deal with such things all the time: to negotiate again, to meet, to change the terms, to implement the project, and so on. Like any normal investor, I cannot waste my time on such things. So one must let the entrepreneur deal with all of this right from the start.

Fundraising is the startup’s concern

There is a misconception that the investor usually helps you raise the next round of funding. In reality, the opposite is true: if the fund doesn’t want to pull out of the project, it generally doesn't want to see another investor. This means that the fund will likely have to buy more shares, and at a higher valuation. Funds usually help less successful projects - so that they can, in the future, take less take care of the project. In any case, the fundraising initiative should come from startup. The investor will help and will introduce the project to the right people, but the startup itself must do all the hard work – gathering advice, contacts, doing presentations.

Disputes between investors should be resolved by the startup

Often the entrepreneur thinks that all investors are in the same boat. This is not so - they have different expectations, goals and plans. And "resolving” conflicts is the startups’ task. Such conflicts are not uncommon: all investors have serious ambitions and their own opinions. Therefore, startups should behave as a host, assigning sitting places at the table to the guests. This is a sign of a strong entrepreneur: I'm sure Jack Ma or Zuckerberg dictate the conditions in their companies themselves and when funds have disagreements, they are put into opposite corners. But their example is not followed quite so often - usually startups just surrender and say, “You'll agree on something without me." This position is weak.

The blame in such situations sometimes lies with the funds themselves, they do not always build relationships with their portfolio companies correctly. But in any case the entrepreneur needs to remember that it's his or her company, so the initiative should belong to him or her.

About the Author: Serguei Beloussov, CEO, Acronis Software, is a self-made entrepreneur and business executive involved with building, growing and leading high-performing, multi-national high tech companies in North America, Europe and Asia. Acronis is a global leader in backup and disaster recovery, very profitable, and continues to grow quickly. Beloussov is also a founder, main investor and Chairman of the Board of Acumatica – fast-growing startup company in the cloud ERP space.

Disclaimer: The views expressed in this article are solely those of the author. MYB takes no responsibility for, and will not be liable for, the information provided by the author.