Not a tech story per se, but one which relates to everyone working within the tech industry.

Most readers will probably know me for my writing – after fifteen years and many thousands of articles, I’ve left digital breadcrumbs all over the web, for better or worse. But I do a bunch of other stuff in the industry – I’m a professional board member, a mentor and adviser and a relatively active angel investor.

It is in the context of this last role that I wrote a grumpy tweet a couple of years ago:

Startup CEOs: it is utterly unacceptable to simply drop investor updates post investment. You’re doing your reputations serious harm…

— Ben Kepes (@benkepes) March 15, 2017

The context for that tweet was frustration about the CEOs/founders of some of my portfolio companies. While some of those people are excellent at keeping investors informed (kudos to JD Trask from Raygun and Vanessa Wilson from a since-acquired StorReduce) others are far less so. In fact, there are two or three companies in my portfolio that I have heard absolutely nothing from for over six months!

As is often the case with Twitter, my innocuous-enough tweet started something of a low-grade storm of discussion, and led to Jesse Proudman, himself a former CEO (and founder, of cloud infrastructure company BlueBox, now a part of IBM) writing a most excellent post from his perspective. And what a perspective it is – Proudman spent years raising investment, going through some high points and a number of horrible low points, before finally exiting his company. And since then he has been on the other side of the fence, as an investor in 19 startups. As an aside, it is great to see Proudman putting his well-earned cash back into the ecosystem. Sure he’s also spending money on race cars and boats, but he’s supporting an entire generation of new entrepreneurs as well – kudos Jesse!

Jesse’s post somewhat mirrors another perspective, that of Paul Graham, the founder of uber-accelerator Y Combinator. Now Graham is undeniably a polarizing figure and has been criticized for his views, and his alleged role in perpetuating the Silicon Valley “brogrammer” culture. But while Graham may have his faults, it’s hard to deny that he knows startups. in his post, Graham gave some advice to his startup CEOs for how they can, in his words, avoid dying. Of course, he’s talking about the metaphorical dying, that of the founder’s companies. He is no doubt invested in anti-ageing companies but his advice, at least in this post, didn’t extend to blood transfusions with teenagers or funny coffee drinks as an elixir for everlasting life.

Both Graham and Proudman put it simply enough, while founders balk at the idea of sharing bad news with their investors, and worry about the optics of admitting that their hypotheses were fundamentally flawed. By trying to shield investors from the realities they’re facing, at best they reduce the opportunity for their investors to help them, at worst they make their potential outcomes worse. As Proudman points out:

“It can feel wildly overwhelming to tell investors who trusted you with their funds that all the hopes and dreams you sold them aren’t materializing in the way that you thought they would. So you wait and procrastinate. The longer the duration between updates, the more you have to explain and the more overwhelming it can become. And so you procrastinate further and no update is ever sent.”

But as he goes on to point out, a founder’s investors can be their greatest allies and advocates. They can only be helpful if they know what’s going on. Angel and Seed investors pride themselves on providing value to their fledgling companies, but it’s impossible to provide value if they’re kept in the dark.

To put it simply: no one likes losing money, and no one likes to hear that the opportunity they’d considered as part of their retirement strategy is foundering and runs the risk of being dashed on rocks. But they’re far better to hear this earlier and to see if there is something that they can do to help, rather than get the “oh sorry, it didn’t work out” email when the lifeboats have all gone.

It reminds me of an email I received from one of the companies I had invested in (and, per Graham’s “if you don’t talk to your investors, you’re increasing your chances of failing” opinion) and which has since shut up shop. In a nasty turn the founder and CEO, who was the product visionary, was replaced by a new “Silicon Valley-friendly” CEO. Upon closing an early stage venture-backed round, this CEO sent an email to all the seed and angel investors in the company which contained the following note:

I should note that shareholder letters (annually, quarterly, or ever) are not legally required, and unfortunately I struggle to find time to compose them.  In the Silicon Valley world of startups, they are rarely done.  I will try to publish these when I get a chance, but ask you to not expect updates at any regular interval.

Well, at least said CEO was honest but essentially he was saying that the legion of early backers who had provided funding, advice, introductions, and mentorship to the company, were no longer worthy of information and would be best to expect little or no communications. While he may have been correct in his assertion that there was no legal requirement for information, the moral requirement is entirely another thing.

As it happened, in this case, it was all moot since the company was unable to raise subsequent funding and hence shut down. I do wonder, however, what would have been the situation where the CEO to have taken a more open and honest perspective. Maybe the investors would have been able to help find the company the lifeblood it so sorely needed. We’ll never know now. Again, to quote Proudman:

”…your circle of investors will certainly be first on your list when you’re ready to raise your next round. If they’re excited about what you’re working on and actively see your progress, it’s a much easier conversation than if you’re forced to start from scratch and bring them up to speed on everything that’s happened since you took their money. Ultimately, the best investor relationships are ones that are built on a long founded and deep-seated place of trust vs. an obligation of a one-time transaction.”

But aside from all the logical reasons why communications are important and valuable and a good use of a CEO’s time. There is one final reason that, in the bigger picture of things, keeping your investors in the loop is the right thing to do. Again, per Proudman:

“…it’s just polite. You took someone else’s money to build your dream. The least you can do is keep them updated on how it’s going.”

I’ve learned much in my investing journey to date. One mistake I’ll hopefully never make again is to invest in someone that has the arrogance, the lack of respect and the blind self-assuredness to believe that they have no reason nor obligation to talk to me after my money hits their bank account.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

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