It's part of human nature to want to express the best of ourselves and the work we do. However, this can mean that in our career we all at some point tell half-truths.
We do this to look better than a competitor & to validate ourselves. It's ok, you can admit this, we all do it at some point.
However, it's a tale told over and over again that one of the biggest mistakes an entrepreneur can make is not being honest with their investor. It’s easy to dance around the truth or upsell achievements. If you’re working together to build something, then you want to be on the same side, and this requires transparency and communication. You need to be sharing the real challenges you’re facing.
Yep, it’s going great, our projections are great and the margins are perfect, I’m definitely not losing sleep every night worried...
Nothing ever goes 100% right 100% of the time
As David Bartram said in a recent interview with us:
Let's be clearer on failure and recognise that is part of the market
Failure is part of the parcel, but social investors don’t want investments to fail. So if something’s gone wrong, tackle it head-on.
An upside of working with a social investor is that they care about your mission. Which means they'll likely get you the extra help and support you need - see this blog for real examples. Social investors will also help you stress-test your model. Which means if you fall victim to extreme optimism in the early stages of your organisation, they'll help you to be honest with yourself. From the off-set, you have the opportunity to have frank conversations about where the cracks lie and where vulnerabilities are.
It’s not unusual (in fact, it’s fairly common) for investors to adjust their offer
The numbers must stack up for an investor to be able to lend. However, they may review terms. They may also extend loan periods and grant capital repayment holidays. In some cases, they'll even offer extra support for the board or executive team. So if you find yourself in a situation where things aren't going well, it’s best to bite the bullet and say so you can work with your investor to find a solution.
Easier said than done though, we know!
Here are 6 tips for building and maintaining an honest (and strong) relationship with your investor:
1. Start early
Build your network and connect with funders when it's not even relevant...
If you talk to investors early in your journey they can give you feedback way before you’re looking for money. There’s even a chance they end up being the investor who gives you money! By starting early you may also get to know them more as a person as well, which is always useful for forming a trusting relationship.
2. Don't jump head-first into the first deal you're offered!
We cannot repeat this enough.
You need to be self-aware and really sure that you'll be able to work with this person and that your interests are 100% aligned. Celia Hodson, Award-winning CEO of Hey Girls, explains the importance of patience when choosing an investor in this clip:
Investors, of course, have a role to play in this relationship of honesty. Do you trust this person and feel they’re being honest with you too? Does this relationship look like a good fit for your organisation's growth? If not, keep looking! Ps. you could find the Good Finance directory useful for this.
3. Know what you want/need
Have a spreadsheet that can map out the minimum next 2-3 years, even if it’s quite basic. What are the anticipated costs you need to sustain and grow the organisation? My financial statement is my lifeline...
Knowing your expected social impact matters, it really does - read our previous blog for more on this. However, your organisation will need to pay the money back so numbers are really important too! When you have those early conversations, you want to have a somewhat clear understanding of what you could need. Keep your numbers close to you!
4. Know what motivates your investor
It's vital that you know what motivates them and why they're investing in you. You'll spend a lot of time communicating and marketing for your organisation, but you also need to have strong communications with your investors so they continue to back you. You can spend lots of time reaching out to your audience, but don't forget that you need to continuously present your organisation to them too.
5. Ask for regular advice and feedback
Be sure that you’re clear with what you most want help with. To get the most from this partnership, keep them updated with updates - regular meetings or a monthly email. Remember, your investor has invested in you and your organisation because they believe in you.
6. Don't delay the tricky conversations
The sooner you approach an issue, the quicker there's a chance it can be resolved. Share the problems with them and show you've thought of solutions. Honesty is the best policy.
If investors feel you're being honest, you've highlighted your mistakes & you've also celebrated your wins, you'll give them more confidence in you.
Lastly, remember that honesty isn't just about mentioning the cracks, it's also about highlighting your wins!
More in the 7 lessons in social investment series
Digital Marketing & Communications Officer, Good Finance