Investors and business owners often compare their relationships to a marriage. Both parties spend time searching for the right fit, they enter into a partnership with certain expectations, and they are ultimately looking to build a long-term pairing.
"You have to like each other, you have to live with each other, and you have to be driven to the same goal together," says Arlene Dickinson, CEO of Venture Communications, and a venture capitalist on CBC's Dragons' Den. "It's somewhere between a friendship and a marriage and a business relationship."
But like any relationship there are bound to be challenges, which is why it's important for all parties to stay on the same page. "I think this issue of investor alignment is one of the really, really key issues of the industry," says Peter van der Velden, president of Canada's Venture Capital and Private Equity Association (CVCA).
Clashes between investors and business owners often arise over differences in goals, strategy, and approach, he adds.
It's easy for business owners and investors to get caught up in the financial elements of their relationship, but Mr. Van der Velden suggests both parties put a greater emphasis on building a strong partnership. "I understand that there's a lot of pressure to raise money," he explains, "but do your due diligence, and I mean that as fully as I can mean that. Talk to lots of other people, take your time, and don't hesitate to ask questions."
Mr. Van der Velden says entrepreneurs should not be afraid to ask investors about their corporate structure, their other investments, whether they've ever had to change CEOs, and if so, how they went about that process. Investors should ask a lot of questions too, but entrepreneurs don't necessarily need to have all the answers, argues Karamdeep Nijjar, a principal investor with iNovia Capital, a Montreal-based venture capital firm.
"There are going to be a ton of unanswered questions," he points out. "What you kind of bet on is: 'Is the team that you're backing smart enough to figure out the answers to those questions if you give them the resources they're looking for?'"
Entrepreneurs and investors need to establish a firm understand of their expectations before making a deal, Mr. Nijjar says, adding that partnerships can fall apart when one party assumes capital can solve a company's problems.
"Capital doesn't discriminate. If you have things that are going fantastically well with your company, you can put resources behind that and it will probably continue to go well. If you have fundamental issues in your company, be it with your product or your team or the market, the additional capital will make those issues that much worse."
As investors continue to put greater emphasis on finding the right partnerships they often look to entrepreneurs to advise, join, or even manage funds, reducing the gap between the two parties.
"Entrepreneurs who do investments at the same time have a unique perspective of what the landscape is right now, because you're kind of living it every day and at the same time you're looking to help other people who are doing it at the same time as you," says L.P. Maurice, CEO and co-founder of Montreal-based Busbud and a member of Anges Quebec, a network of Quebec-based angel investors.
Through his experience as both entrepreneur and investor Mr. Maurice has learned that friction can often be created by unrealistic expectations. On the one hand, entrepreneurs often expect too much from venture capitalists, who are typically juggling multiple businesses in their portfolio and don't have as much time to dedicate to each business. On the other hand, venture capitalists (VCs) often fall into the trap of thinking too big too quickly, causing them to have unrealistic expectations.
"I think that the key is communication," he says. "For me it's a mix of formal communication – like the monthly updates you send to your VC – also sharing the financial information and a list of the challenges you're currently facing, but it's also a lot of informal communication."
Melanie Daigle, co-founder of BonLook, a Montreal-based eyewear designer and online distributor, agreed to meet with her investors from Anges Quebec four times a year, but she found that it's important to keep investors up to date during the interim period between meetings.
"That's very important, because sometimes they'll just get our feedback four times a year and they get disconnected," she explains. After speaking with other entrepreneurs, Ms. Daigle decided to produce a monthly newsletter for her investors, and to provide them with access to the company's internal dashboards.
According to Ms. Dickinson, figuring out the best way to communicate with partners takes time, but it is very important when it comes building a long-term business relationship.
"I've got a couple really strong partnerships that I've formed over the years, and I've found that the best ones have been the ones where people understand my style, and I get to know theirs," she says. "It's always better to over-communicate than under-communicate."
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