On creating a productive CEO / Investor relationship
After raising my first angel investment, the lead investor, the CEO of one of the largest software companies in town, invited me to his office. We commandeered a conference room, and he told me that while he loved the company I was building, he didn’t think things would work out the way I’d described. He expected that getting to profitability would take way more than the $250k I had raised (we ended up raising $20m+), and that he didn’t think our go-to-market strategy would work.
I was unnerved. Why had he decided to invest if he didn’t believe in the pitch?
“I don’t care about the details right now,” he answered. “I’m not investing in your pitch. I’m investing in who I think you can become.”
At first I couldn’t believe he was serious. This must be a test, I thought. But as I opened up over the coming months and years, he showed up in my corner again and again. I shared parts of myself with him that I worried were too messy for other investors, and he repaid me by helping me grow into a capable CEO.
I always imagined that every CEO had an investor like this. But these days, as I coach dozens of founders and investors in growing their organizations, I’ve realized just how rare relationships like this are in the boardroom, and just how much of a missed opportunity this really is.
On Creating a Productive CEO / Investor Relationship
A person cannot look good and get better at the same time.
And yet, too often the entrepreneur / investor relationship is fraught with an existential need to look good on both sides. This ego-driven, reciprocal performance slows down the learning process and leads to burnout in the relationship. And first-time CEOs especially, can’t afford to learn slowly.
I wrote previously about how CEOs can avoid this trap when they’re raising money (in summary, make bold statements, but show your work). But investors bear responsibility as well.
There is a single, high leverage-conversation that an investor can have with the CEO of a prospective company, that optimizes their entire subsequent relationship for growth and success. It’s a conversation so uncommon that it will also help investors differentiate themselves from other funds courting the CEO. It begins like this:
“It’s ok that we don’t know what we’re doing (yet).”
Early in my career, when I was just starting my first company and a long way from even thinking about coaching, I attended a fireside chat with a well-known CEO. Someone asked him for the most important piece of advice he would give to any new CEO. He explained that in his experience, the one thing that every company had in common was that “nobody knows what the hell they’re doing.” Hearing this was incredibly validating, as I certainly didn’t know what I was doing, and his story gave me permission to march forward with confidence anyway.
It’s an open secret that new CEOs aren’t yet experts at building companies, but this bit of obviousness, so easy to discuss with me (now that I’m not raising money from them), is somehow taboo for investors to discuss with CEOs themselves. Ironically and unfortunately, by not being open, investors create an implicit expectation that they’re investing in the CEO’s pitch being “correct,” and that any deviation from that plan represents failure.
And in so doing, they sets their CEOs up to struggle.
The alternative is simple: Investors, please consider pulling your new CEOs aside and saying something like this:
“Hey listen, I am so excited to invest in what you’re building, but even though I love your plan, it still may not work out the way you’re saying. Even the most successful companies never do. I love you as a CEO, too, but since you haven’t scaled a company as CEO before I know you have a ton to learn to do the job well. That’s ok; I have a ton to learn about you and this market to do my job well as your investor. I’m excited to invest in you because I love the opportunity, and because even though we don’t know everything yet, I believe that together we’re smart and resourceful enough to learn what we don’t know quickly, and iterate. That in mind, I’d like to talk openly about what each of us don’t know, so we can both learn as fast as possible. I’ll start.”
And then the investor proceeds to lay out the things she knows she doesn’t know about the investment (how will we communicate about hard things? How will the board members work together? etc.), creating a safe space for the CEO to do the same. At that point, it’s the CEO’s responsibility to take advantage of that opportunity, and assuming they do, the two people have an open conversation about these risks, and develop a plan to mitigate them together.
Isn’t that better than having a CEO focused halfway on building the business and halfway on managing your perception of them? Startups don’t starve for lack of things to do, they drown due to lack of focus.
It’s not that we don’t see it
I explore this dynamic with investors and entrepreneurs in my work every day. Folks on both sides of the table spend hours analyzing perceived subtext or secondary meanings coming from their counterparts and hours more agonizing over how they’re perceived. And both sides, when they have some distance from the interpersonal “show” in a low-stakes conversation with me, talk of how much easier things would be if we were all just real with one another.
Both sides are right: things would be dramatically easier if they were real and open with one another from the beginning. But because talking honestly about our weaknesses is scary, and because startup culture makes it feel like you have to put on a show to raise or invest money, it takes bravery to go first.
For a first time founder, going first is an existential threat. Maybe the investor does expect him or her to know everything, and expects everything to work out as planned. Maybe the investor is one of those folks who doesn’t deal well with failure. If so, going first may cost the CEO their relationship with you, an investment, and maybe even their company.
Which is why intentionally using your position as an investor to set up the relationship for success is so important. Being open with a CEO about all that you have to learn to effectively serve as his investor is scary, too, but the stakes are much lower. The worst thing that can happen is you lose the deal, but that can be a far preferable outcome to investing in a CEO who refuses to acknowledge their limitations, and address them proactively.
No first time CEO knows what they’re doing. No new company’s plan actually goes according to plan.
It’s easy to ignore these facts. It’s more comfortable to pretend it’s all going to work out. But by getting uncomfortable and embracing these challenges head on, investors have the power to create a partnership with their CEOs oriented around mutual learning and growth. One in which each party cares most about solving critical issues and achieving business success, no matter how it makes them look.
Want to dive deeper?
If you liked this, check out this list of my top posts, read and shared by thousands of entrepreneurs.
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Executive Coaching for Entrepreneurs
There’s a reason every elite athlete in the world works with a coach. You need more than one perspective to see your best work.
I’m an executive coach and the founder of Inside-Out Leadership, a boutique leadership development agency that supports entrepreneurs to step fully into their lives, and transform their companies into their masterpieces.
Leveraging 15-years as a founder/CEO, along with deep training in mindfulness, psychology, Neurolinguistic Programming, psychedelic integration and more, I have helped leaders from some of the fastest growing companies and VC funds in the world design a more conscious life and make key changes to improve their performance and satisfaction.
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