What if the entrepreneur-investor relationship was no different than a marriage? Much like a marriage, the relationship between investors and entrepreneurs is supposed to be based on a long-term commitment. In this interview, we speak with Grenoble Ecole de Management experts who share key advice to solidify the relationship between entrepreneur and investor.
Stephen Walsh is a former professor at Grenoble Ecole de Management as well as a former entrepreneur specialized in technological entrepreneurship. Arsia Amir-Aslani is a professor and researcher at Grenoble Ecole de Management and former banker who is specialized in company and innovation finance. The two experts collaborated to carry out research on the relationship between entrepreneurs and investors. They share with us advice drawn from their research results.
The relationship between investors and entrepreneurs is not generally seen as a long-term relationship. As a result, why do you compare the entrepreneur-investor relationship to a marriage, and in particular, to the long-term commitment of such relationships?
These entrepreneur-investor relationships can in fact last a very long time. They simply change shape. Each phase of a company's life includes specific categories of investors such as business angels, venture capital, IPOs, growth investors or dividend investors. These phases enable support from investors to evolve by implement funding models that are adapted to the specific needs of a company.
You offer several pieces of advice concerning the entrepreneur-investor relationship. In particular, you highlight trust and mutual respect as the key factor. Could you explain your reasoning?
Mutual trust is what allows couples to overcome challenging times. Similarly, trust is a crucial factor in the relationship between investors and entrepreneurs. You build trust by sharing information. For example, unlisted companies have difficulty guaranteeing long-term development and constant growth. But a relationship based on trust is what enables investors and entrepreneurs to collaborate even when the future is uncertain.
You cite commitment as a key condition to overcome challenging times. Can you explain further?
In the case of a startup, commitment is generally easy to come by when things are going well. It's easy to be committed when key stepping stones are far away and there's extra cash on hand. However, when you reach delicate transition phases, the word commitment takes on its real meaning. Communication can quickly become tense between entrepreneurs and investors. The unshakable support that a venture capitalist was supposed to provide might quickly turn sour with new clauses or agreements that don't favor the company. As a result, it's essential for entrepreneurs to find investors who have a reputation for steady commitment.
In conclusion, what other advice could you share in terms of developing a relationship between entrepreneurs and investors?
Another key lesson to remember is that entrepreneurs need investors who have both deep pockets and a well-developed network that brings connections to other investors and industry leaders. This is all the more true for biotech companies whose traditional business model requires enormous funding between the discovery phase and marketing phase.