How do I repair a frayed relationship with my lead investor?

Accepting a venture capital investment shares many similarities to getting married; they are long-term relationships that are not easy to get out of. In fact, it’s likely easier to get divorced than it is to remove an investor from a cap table. Like all relationships, there will be high and low points. Working on the relationships with your investors will be an ongoing exercise for you as CEO. Working on investor relations is especially important when your relationship is frayed.

Stepping back, it’s important to understand why investor relations is a critical function in any organization. Investors bring more than capital; they bring their network, experience, and expertise as well. In a strained relationship, investors are unlikely to bring to the table their full non-capital contributions. Investors are also an extension of your brand. Most venture capitalists are public with their portfolio makeup. If a relationship is soured, they won’t be going out of their way to promote your company within their network. Instead, they will be promoting those companies in their portfolio which they are on the best terms with.

As well, investors’ perceptions are formed over time both by how well a company performs as well as how it communicates. In the public markets, Investor Relations (IR) departments work very hard to ensure that their communication is considered best in class because this accolade has a positive impact on a company’s access and cost of capital. Likewise, in private markets, your cost of capital will be directly impacted by your investor relations efforts. The more effectively you can communicate with your investors, the lower the cost of your capital will be.

So now onto repairing your relationship with your lead investor.

Step 1: Start

The first step is to get started. It’s easy to sit there fuming over the poor relationship and go on ignoring the problem. Begin with opening communications. Regardless of who you believe is at fault for the poor relationship, the onus is on the CEO to engage the capital provider. Set up a meeting, preferably face to face.

Step 2: Listen

Why have things gone bad? Listen. You may receive a list of grievances or it may be just a small thing that can be easily fixed. You may feel strongly that the investor is at fault for the poor relation. Those don’t matter. What matters is that you don’t go into this first meeting with preconceived notions. Your job in this meeting is to listen and take notes. Commit to a prompt follow-up in that first meeting.

Step 3: Understand

Now is your chance to understand what the primary source of the conflict is. Is it missed performance targets? Is it misaligned expectations? Have you and/or the investor both upheld your side of the (typically) unwritten agreement at the time of financing? There are obviously far too many issues than I can list here. However, almost all investor/investee relationship issues are rooted in the setting and meeting of expectations. Do your best to follow the threads to their root cause.

Step 4: Expectations

Communication means sharing information. Be open and transparent with your information. Don’t over or undersell what’s going on. Try to present your communications in as balanced a manner as possible. Ultimately, the goal of these investor connections is developing a shared perspective. This, in turn, leads to an alignment on strategy. An alignment on strategy gets you to a shared set of expectations.

You very likely had an alignment on strategy at the time of your financing (few investments happen without). A significant source of a frayed relationship will not only be missed expectations but more fundamental, a disagreement on strategy. Communication is the bridge to alignment. Shared expectations (and clear KPIs) are the foundation of that bridge.

Step 5: Execute

Obviously, once you’ve set (or reset) expectations, it’s time to deliver. Regular, consistent and honest communication is critical to ensuring a healthy and productive relationship between investor and company. Make sure you’ve made any necessary process changes internally to meet those expectations. No one likes surprises. If you see a potential shock coming up, don’t be afraid to pick up the phone to give your investors a heads up. Almost all investors will react better to the emergence of bad news if they were told ahead of time that there was a possibility of such news. It’s critical that during the months after a repair in a relationship that you don’t fray it again.

Step 6: Follow through

Keep it up! Good communication starts with regular feedback. Large or small company, the management team has a responsibility to let investors know how the business is performing. This is important when things are going well but it is significantly more important when the company is overcoming challenges. A steady cadence of meeting or exceeding expectations as a CEO and organization is what brings trust in the team. Trust that will convert into a lower cost of capital and higher valuations at your next financing.

Other Investors

This advice is on rebuilding the communication channels with your lead investor. However, the communications you have with your other investors in just as important.

I recommend you send out a quarterly communication that includes an honest and complete picture of the business. Report on your performance relative to your target. This is particularly important in terms of allowing your investor to judge how well you execute your business plan. Give a clear picture of your financials. Update your presentation deck and include it with your quarterly update. Set up a conference call twice per year and invite your investors to dial in.

If you have done all of this and still have issues with unhappy investors, I recommend reaching out and speaking with this investor directly, as you would a lead investor above. It could be that despite your best efforts to offer a complete picture of the business, the investor is not getting the info that he or she requires — going out of your way to truly listen is a giant step towards addressing the frustration of any investor.

Christian Lassonde, Founder and Managing Partner @ Impression Ventures