The Meaning of Trust Between Management and Investors

22nd August, 2013 No Comments Blog , Venture Capital

This infographic summarizes a recent study on branding in venture capital by marketing consultancy DeSantis Breindel.  For companies seeking venture capital and those of us in the industry, the infographic will probably mostly elicit head nodding, but there are a couple of somewhat interesting nuggets.

It’s not surprising that entrepreneurs and venture capitalists believe that an entrepreneur-friendly attitude and trustworthiness are important to management teams when they are evaluating VC firms.  It is perhaps surprising that entrepreneurs rate these as by far the most important qualities in that evaluation; the next-most-important (“collaborative,” which is somewhat difficult to disentangle from “friendly”) ranks about half as important as either of these.  Also surprising:  venture capitalists place significantly less emphasis on these qualities than do entrepreneurs (at least in their own marketing efforts).

The infographic doesn’t define “trust” or “entrepreneur-friendly”, so I’m going to take a crack here to help me make a couple of points.  I think some entrepreneurs believe that “entrepreneur-friendly” means “deal terms that favor entrepreneurs” and that “trust” and “collaboration” imply that an investor will simply sit on the sidelines while management makes whatever decisions they like.  I feel differently, and think many entrepreneurs, particularly those who have experienced trusted partnerships with investors whom they call their friends, probably do too.

I trust someone if I am comfortable that they will do what they say, will take my interests into account when making decisions, and will exercise good judgment.  As a litmus test, I suggest that a trustworthy person will do the “right thing” even when they might have an incentive to do otherwise and could reasonably expect that no one is watching.  An entrepreneur-friendly firm responds to entrepreneurs in a timely fashion, is as transparent as possible in all communications, strives for deal terms that are fair in the market context, and supports its portfolio companies through advice, introductions, and services – without getting in the way.

I try to be trustworthy and friendly in my dealings with management teams.  At the same time, trust is the single most important quality I look for in an entrepreneur, and I hope each one I get to talk to is looking to determine whether I am trustworthy.  You may not agree with me every time we interact, but I will try to be supportive even when we disagree, and I do what I say.  That is the only way I’ve found to build lasting trust.

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