It’s not breaking news that the last two years have been trying for companies in many industries. Slowing sales and an end to the zero-interest environment in which many companies were founded form a recipe for rising levels of hostile investors. When investments decline in value and uncertainty clouds the future, even the most amicable investor relationships can break down. Owners and operators are already dealing with a lot of stress and feeling the hot breath of investors breathing down their neck can be a breeding ground for tension. Prolonged tension and things hit the point of no return. So how do founders and executives navigate the current environment and maintain constructive dialogue with investors who might be feeling increasingly hostile?
Management must recognize that negativity and frustration from investors are understandable during tough times. Their capital is on the line, and they naturally seek reassurance and a clear path forward. Don’t dismiss their concerns as mere “hostility;” instead, approach them with empathy and open communication.
Investors must recognize that while an investment is dollars and cents, management are people, dealing with a lot of stress and (in most cases) doing the best that they can to right the ship.
Too often management fails to understand that investors often answer to people as well and investors treat investments like spreadsheets instead of the people that make up the company. Swap shoes for a few seconds and you can approach things from a more productive place. Remember, owners/management and their investors share a common goal: the success of the company.
Management, it cannot all be blamed on the market or outside factors. You have to look in the mirror and get real with yourself, your skill level and expertise.
Investors, were you as value-additive as you claimed during the investment process? And, don’t forget the litany of risk factors that you weighed in making the investment. This is not T-bills. Most venture and private equity investments come with risk, it’s just playing out that those risks and down side scenarios may be coming to fruition.
You cannot be an agent of improvement without some self reflection.
Nothing fuels distrust like information vacuums. Management must be proactive in sharing updates, both good and bad. And no, that does not mean a stray update email from time to time. Remember, people want engagement. Get together in person or at least on a video call to get eye to eye and discuss the business dynamics and needs. Don’t forget, these people are investors not prospective investors. Stop selling them and start providing even-handed updates. The easiest way to do this is with numbers rather than narratives. Investors like numbers. Share the challenges, but present them alongside your plan to address them.
Regularly scheduled calls and detailed reports can often stave off the point of no return and carrying these practices forward into good times is likely to lead to strengthened relations and a higher likelihood of follow-on investment.
Difficult times might necessitate tough decisions. There is no reason to sugarcoat or tiptoe around difficult conversations. Hit them head on.
If you need to pivot, pivot.
If your burn is out of hand and crippling the balance sheet, put a magnifying glass on it.
If management is out over their skis, call it out.
If an investor does not know enough about your business to get active, tell them to stand aside before their input causes further damage.
Trust us, things rarely get better by ignoring them, so get to openly discussing potential adjustments with investors, explaining the rationale and expected outcomes.
Sometimes you need a bit of outside perspective to re-grease the investor relationship wheels. If tensions escalate beyond constructive dialogue, consider bringing in a neutral third party, such as a mediator or counselor. Lean on the Transition Point team . Outside experts can facilitate communication, help manage emotions, and guide you towards mutually beneficial solutions.
If you have reached the point of no return, do not delay the inevitable. It is not the water outside the boat, but rather the water inside the boat, that ultimately sinks it. Breakup before you go bust. You do not have to be friends or even aligned to create a mutually agreeable deal that creates value for both sides. Too many times after reaching an impasse or stalemate, investors and founders/management do nothing. If the relationship has run its course, introducing change is in the best interest of the company. It’s time for a management buyout and replacement or an investor buyout to free yourself of an investor that is no longer aligned with management and its vision. A buyout, even on less than ideal terms is exponentially more palatable than a slow and painful death while struggling with a partner you know longer want to be in business with.
Now is when people will decry, if we had cash for a buyout, we wouldn’t be in this situation to begin with. Remember, buyouts do not have to come in the form of immediate cash, there are countless ways to creatively structure a separation. You just have to take action and have the right counsel involved.
