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.