It’s hard to find good investors for your startup. That’s why only .05% of startups raise venture capital funding. Of the entrepreneurs I’ve spoken with who have raised startup capital, almost all of them complain about having investors they can’t manage.

But the definition of a “manageable investor” is relative to the entrepreneur’s needs.

One entrepreneur told me he only wanted the money. He preferred investors to stay silent and hidden because his experience proved that investors only got in the way of business growth.

Another entrepreneur told me her investors always argued about the direction of the company despite having little involvement in executing the strategy. They just couldn’t get along.

Managing your relationships with your investors is like managing your relationship with anyone else. You need to find alignment. The fundamentals are in understanding each other’s business objectives, personal interests, and communication styles.

I’ll go through four different scenarios that break down the best and worst ways to communicate with investors.

Communication and Conflict Styles

Aggressive

If you hold your interests in higher regard than your investor’s, you may be aggressive in “getting your way.” This is an effective but inappropriate communication style.

I’ve heard stories of founders yelling and cursing at their investors, threatening to sue them for sabotaging the business direction.

Aggression is not unidirectional; the investor can be the culprit as well. I’ve run across cases where the investors blackmailed or sexually harassed an entrepreneur.

It’s typical to see a negative consequence (like threats to leave, sue, or harm in some fashion) as a way to persuade someone to do something. And it can be as crude as the above examples or a very subtle insinuation.

Avoidance

If you don’t care about addressing either of your interests, you’ll put off communicating altogether. This is both ineffective and inappropriate.

It’s also the most common problem entrepreneurs have.

“One of the biggest challenges is when companies don’t communicate that they have a problem.”
- Andreas Kraemer, Managing Partner & VC at Mita Ventures

When entrepreneurs avoid communicating with investors, minor challenges grow into urgent problems. This causes even seasoned investors to become overbearing.

The way an unseasoned surfer grabs the board to protect himself but instead gets overtaken by the waves and tumbles to defeat, an investor will try to take control during times of uncertainty to his own detriment.

The action forces the entrepreneur to act irrationally and withhold even more information, creating a bigger divide between the investor and the management team.

Appeasing

If you hold your investor’s interest in higher regard than your own, you might become overly accommodating. You might think you’re acting in an appropriate decorum but it’s actually a very ineffective communication style.

I notice this a lot with entrepreneurs. They think because an investor brings money, then he also brings wisdom, good character, and large scale connections — all things deserving of respect. Assuming this is all true — trust me, most of the time it’s far from it — entrepreneurs still cater so much to their investor that they fail at making objective decisions.

Appeasing the investor is the second biggest mistake entrepreneurs make.

If you know your business, assert it. Otherwise, you’ll allow the investors to dictate terms, business objectives, and your startup’s valuation. A bad or inexperienced startup investor will take advantage of that.

Assertive

If you value your startup’s interests and your investor’s interests equally high, then you’re more likely to assert both interests and compromise to find a win-win. This is both effective and appropriate.

Entrepreneurs are challenged with communicating fearlessly, honestly, and transparently using a structured reporting process during highly organized meetings.

They just don’t have the confidence or the process.

So let me provide some steps that are derived from a course I took at Thunderbird School of Global Management called Communicating at Work.

1 — Make a direct request

• Select a single problem
• Write out a request for the investor to do more of a specific behavior
• Bring it up at a time when neither of you are emotionally upset

2 — Positive reinforcement

• Give praise or verbal appreciation to the kind of behavior you like
• Describe a trade for them to change their behaviors
• Build in rewards that enable the right behaviors on an ongoing basis

3 — Negative Consequences

• Identify problems the current behavior creates
• Communicate consequences if the behavior doesn’t change

Sample Structure

“When you do X, it makes me feel like Y (or it makes me feel like you do/don’t Y). I need you to do Z.”

Real Example

“Henry, when you push off the subject of work-life balance, it comes across as you’re either unwilling or don’t care about reaching a solution about our company culture that we can all agree to. What I need is for you give me specific solutions to make the work environment more… workable.”

Conclusion

I interviewed over 80 people in my professional venture network about entrepreneurial challenges. Interpersonal conflict management and resolution prevailed as the biggest challenge faced by both investors and management teams when trying to find alignment.

But both investors and entrepreneurs should realize that conflict is actually healthy. It can lead to great results if managed well. Resolving conflict, should it have gotten a little too far, is also a great learning experience from which both parties come out closer and stronger.

Entrepreneurs need to value the investor’s interests while asserting their own, and be willing to compromise to ensure they reach a resolution in an effective and appropriate manner.