Trust Must Be Earned Especially with Investors

Whom Should I Trust?

When you start a business, you spend a lot of time alone with your thoughts. To get your business moving, you develop relationships with a select few people who are helping you get ahead. It is not uncommon for entrepreneurs to develop trust with the individuals they started working with—even if you barely know them.

Trust Must Be Earned Especially with Investors

This is particularly important when it comes to investors. Trust doesn’t exist because someone invests in your company. You have to earn the trust of your investor. Your investor has to earn your trust. Many investors, especially the most successful ones, view investing with a talented entrepreneur as a win-win. If they enable the business, both the investor and the entrepreneur can win. Some investors, however, view it as a zero-sum game. A dollar that you get is a dollar they don’t get. These investors will use their influence to make sure that more of those dollars go to them. The priority should be that when the business thrives, investors and the entrepreneur win. Let’s not be naïve. For many investors, the priority is the best interest of the investor followed by what’s in the best interest of the business, and then finally, the entrepreneur. Often entrepreneurs treat investors like confidants and share many details that they should keep to themselves—including that their investment proposal is the only game in town.

“You do not earn someone’s trust because you do business with them.”

Building trust with an investor is critical but that trust must be earned:

I was introduced to my investor by Jason, the former CEO of a healthcare company. The CEO knew healthcare and also the payment space. Our investor had invested in the CEO’s company when he was CEO. In our deal structure, our board allowed for one independent Board member that would be picked by our investor and me. I figured this CEO was the perfect fit since our investor had invested in his company, he had introduced us and he knew the space. I suggested this to our investor. I suggested he knew both of us, knew the space and had no other agenda. He strongly objected. I was surprised.

Prior to closing our deal, I asked our investor for references. The investor gave me as a reference the new CEO of the company of which Jason was formerly CEO. I thought it was strange to have the new CEO as a reference. We had a cordial conversation and I poked and prodded. I got some stock answers and overall a positive reference as you would expect.

Prior to that phone conversation I had never spoken to the CEO. About ten minutes later the phone rang and he was calling again. It was strange because we had concluded but at first I didn’t think much of it. He said to me, “I understand you’re considering Jason to be on your Board.” I was taken aback. Why would he even know I was considering somebody for my Board?

He went on to say that he’s been a CEO for a while and always is in the business of trying to help other CEOs. I told him I appreciated that. He then buried Jason. He said that Jason was not trustworthy and was not the type of person that you want on your Board. I thanked him, told him I appreciated his candor and got oﬀ the phone. I was blown away. Imagine someone who I’ve never met before throwing somebody else under the bus. For all he knew, I could’ve been a reporter for the New York Times.

It told me all I needed to know about my investor. My investor didn’t want Jason on the Board and instructed the CEO to coax me to keep Jason oﬀ my Board. At that point I should’ve walked away. A few months later, our investor sued Jason.

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Whom Should I Trust?