There’s one thing that every entrepreneur needs to remember about the venture capital world: investors are not your friends.
To clarify, they’re not your enemies either. They’re simply exactly what they say they are: people who invest in companies with the expectation of receiving a profit.
Unfortunately, I’ve seen countless entrepreneurs wrongly characterize their investors as friends. It’s a tale as old as time…
“It very easy to fall into believing an investor is your friend. Both groups keep you feeling encouraged and validated. They are also really fun to hang out with - you usually have good chemistry on a personal level with both investors and friends alike. The major difference between the two is that friends believe in you as a person, while investors believe in your idea and its validity in the marketplace.”
But while it may seem harmless on the surface, misconstruing the investor-investee relationship can have significant impacts on your business.
The Trouble With Befriending Investors
First, the problem is that when it comes to friends, we want to see them happy. This normal human tendency can lead entrepreneurs to make decisions that make their friends (investors) happy instead of decisions that make the business grow. These kinds of concessions can put your company — and by extension, your investor’s capital — at risk. Remember, you’ll never truly make your investors happy unless the success of your company nets them a profit.
Second, you may begin to ascribe “friend” traits to them, expecting they should be forgiving when you fall short or conciliatory when you’re stressed out. But strictly speaking, that’s not what they’re there for.
“. . .I actually like my investors and I think they're really good partners," [said Daina Trout, CEO of Health-Ade Kombucha]. I would recommend them. But I had the misinterpretation that they were there for me as an individual."
Investors are business partners, and as such are there to provide business support — not emotional support.
Last, you may believe that as friends, your investors will make time for you no matter what. The reality is that venture capitalists and angel investors are involved with numerous companies at any given moment — two or three of which may be ‘core’ deals. Don’t be surprised when you find out you’re not their one and only, and that their bandwidth to help you is limited.
Focus on Building Your Business, Not Your Social Circle
Personally, I hate the saying “business is business.” I’ve been fortunate enough to become friends with many of the founders whose companies I’ve invested in. But, I’d be lying if I said it wasn’t rare — most investors have no interest in the vicissitudes of friendship. As a founder, your number one priority should be doing what it takes to build a successful business; everything else can follow.