Republished from Forbes
By MAMIE JOEVEER
Any entrepreneur who has gone through the fundraising process understands that creating a strong relationship with investors is a complicated process. Much like a marriage, it depends on trust and honesty. “If you don’t have trust then you can’t generate long-term value,” says Bill Aulet, managing director for the Martin Trust Center for MIT Entrepreneurship. “The relationship will be temporary.”
Aulet spent 25 years in business, raising more than $100 million for his companies before joining MIT. There must be mutual respect for what each group brings to the table, he says. “The investor looking to replace the CEO or the CEO looking to minimize the role of the investor is a bad thing.”
Learning to trust, however, doesn’t come easy. “You have to go through a crisis and see how the other person responds,” Aulet contends.
But before a crisis hits, there are easier, smaller ways to build trust. Simply put: be available, accountable and responsible. “You have to pick up the phone call that comes in on a Sunday night,” he says. “You also have to know that the other person is going to do what they say they are going to do, so that you can do what you are going to do.”
If every interaction feels like a negotiation, he warns, that’s a sure sign that things aren’t going well.
Spreecast CEO Jeff Fluhr, a successful entrepreneur who previously cofounded the online ticket vendor Stubhub, says that building trust means listening to others and taking advice when given.
During StubHub’s early years, Fluhr faced the prospect of terminating several employees—a very difficult decision. He says that a trusted executive and investor expressed concern about the work ethic of the employees in question. He worried the employees’ subpar work ethic would negatively impact company culture. “I listened carefully and thought about his comments,” Fluhr says. “I realized he was right and we terminated a few people. If I hadn’t trusted his opinion as much, it may have taken me longer to make this decision.” In retrospect, Fluhr says, it was the right decision to make.
After StubHub’s sale to eBay in 2007, Fluhr changed course and took a swing at investing. As an angel investor he’s picked up on the importance of trust from the investor’s perspective. “You get a sense of core values and integrity across a series of meetings,” he says. Without that sense of integrity, relationships can’t move forward.
Though it takes time to develop a trusting relationship with an investor, Fluhr points out that the process can be sped up by a warm introduction from a mutual friend.
Bobby Franklin, the president and CEO of the National Venture Capital Association, agrees. The organization runs an office hours program to help with such introductions. “There is a reason why this ecosystem works,” says Franklin. “They (VC’s) have done this so many times and they can help others avoid those same mistakes and prioritize.”
Fluhr says the relationship between an entrepreneur and investor is a long-term commitment. The qualities an entrepreneur brings to the table—like persistence, leadership, scrappiness and honesty—will be recognized and eventually set the stage for success. But of all the key traits, honesty is at the top. “It’s a common thread in all business—whether hiring an employee, or a new vendor. Trust is a key component.”
Mamie Joeveer is an attorney specializing in First Amendment and Media Law and a former captain in the U.S. Marines.