Opinions expressed by Entrepreneur contributors are their own.
Key Takeaways
- The fastest way to lose support from investors is to hide the challenges you face along the startup process. Credibility is not built by perfection, but through clarity.
- The leaders that people trust are the ones who treat disclosure like a habit and not like a negotiation tactic. They set a real plan, communicate it clearly and stay honest about where they are on that path. They understand that people are afraid of surprises, not difficulties. Fundraising is no different.
I once sold a home in Las Vegas, and the required disclosure of everything that was wrong with the house ran 52 pages. I had to put myself in the buyers’ shoes when they came to view the house. I went as far as documenting where the ants come in when it rains because I did not want them to sue me. That is what disclosure looks like when you are serious about trust. Fundraising is no different.
The fastest way to lose support is to hide obstacles. Credibility is not built by perfection, but through clarity. The leaders that people trust are the ones who treat disclosure like a habit and not like a negotiation tactic.
When you are not transparent, people find out
I cannot emphasize transparency enough, especially with early-stage investors. If they understand your obstacles and you are honest, it has been my experience that the investor is rooting for you, especially if they are interested in the mission.
But entrepreneurs do something that is completely backwards. They think the way to earn support is to make everything sound smooth. They talk like nothing is wrong. Then the first obstacle hits, and everyone realizes the story was carefully edited — either it was not true or it was incomplete. When you are not transparent, people find out.
The truth is, the people in your company are pioneers with you. If you want them to support you through the hurdles in the beginning, you must let them see the full picture — both the good and the bad.
State the obstacles plainly, without making excuses
If you have an idea whose time has come that is of tremendous interest to investors, you should tell them, “Look, if I can just overcome these three obstacles, then this is how big this can become.” They would want to know that, rather than hear that everything is fine.
So, the first discipline is simple: Do not hide the obstacles. Say them. Not in a dramatic way. Not as a plea. Just as the reality of the road ahead. I have found that clarity has a sequence.
First, communicate the potential bigness of your idea. How imaginative are you? That is what people are interested in. They are interested in the extraordinary.
Then be transparent about the barriers and what lies ahead so that the support that has been gathered can remain through the inevitable barriers and obstacles that are to come.
Define the milestones you control
People lose trust when they realize you do not have a plan or you cannot explain how their investment would be used. I have seen this in real cases. It usually shows up at the moment a founder must explain how the next stage actually gets unlocked.
In one case, the first thing we had to do was have the shareholder, who was going to become the sole owner, buy out his partner. The partner did not want the long-term plan. He was older and wanted to retire. The partner was simply an obstacle to the future plan.
Once that partner was bought out, the company was in a position to execute the next set of plans, which involved taking on new partners and investors. That is what leaders do. They name the obstacle, and turn it into a milestone.
When talking to investors, it is important to ask:
- What is important to them?
- What is the plan to expand the value of the company?
- How much value can we reasonably expect years later?
- What is the rate of return?
If you cannot explain the milestones, why those investment dollars matter, what the estimates are and what effort is required to make those milestones, you are going to have a very difficult time raising the money at all.
And here is the part leaders avoid saying out loud — even when the plan is solid, there is often a trough.
That is why your milestones must be concrete, and your communication must be disciplined. If you do not define the milestones you control, every hard moment becomes debatable.
Put the documents there and treat ownership like manhole covers
There is investor protection in an exchange environment. All the necessary disclosures must be contained in the requisite documents, resulting in transparency, which will ultimately increase the share price.
This matters for fundraising because leaders could do something else that kills trust — they treat ownership like a casual tool. People throw their entrepreneurial shares around like feather pillows — “Oh, what’s the deal going to be, 80/20?”
We look at shares of an entrepreneurial company like manhole covers. You do not want to throw them around.
If you are sloppy with your own ownership, casual with your own disclosures or constantly revising the story because you are negotiating instead of communicating, the investing public will see right through it.
So, the third discipline is disclosure. Put the paperwork together. Ensure the correct documents are present. Explain what you are doing and why.
The point is to avoid one person controlling your terms and the dilutive effect on your earlier investors and on you as the entrepreneur.
Set the vessel, tell the truth and stay on the path
Over the years, I have seen a consistent difference between leaders who stay supported and leaders who lose trust halfway through the journey.
The leaders who endure are the ones who take the time to set a real plan, communicate it clearly and stay honest about where they are on that path. They understand that people are afraid of surprises, not difficulties.
Fundraising is no different. The leaders people trust do not pretend the ants do not exist. They document where the ants come in when it rains.
Key Takeaways
- The fastest way to lose support from investors is to hide the challenges you face along the startup process. Credibility is not built by perfection, but through clarity.
- The leaders that people trust are the ones who treat disclosure like a habit and not like a negotiation tactic. They set a real plan, communicate it clearly and stay honest about where they are on that path. They understand that people are afraid of surprises, not difficulties. Fundraising is no different.
I once sold a home in Las Vegas, and the required disclosure of everything that was wrong with the house ran 52 pages. I had to put myself in the buyers’ shoes when they came to view the house. I went as far as documenting where the ants come in when it rains because I did not want them to sue me. That is what disclosure looks like when you are serious about trust. Fundraising is no different.
The fastest way to lose support is to hide obstacles. Credibility is not built by perfection, but through clarity. The leaders that people trust are the ones who treat disclosure like a habit and not like a negotiation tactic.
When you are not transparent, people find out
I cannot emphasize transparency enough, especially with early-stage investors. If they understand your obstacles and you are honest, it has been my experience that the investor is rooting for you, especially if they are interested in the mission.