Dropping an investor

I’ve seen a few cases recently where a startup decided to remove a particular investor from their regular “update” emails. The startups were doing this because they found out that the investor had invested in (or otherwise supported) another company that they viewed as competitive.

Fast forward a year or so, and the startup needs more money. The investor they haven’t been communicating with feels frustrated, having not heard from them in some time. It doesn’t feel very good to them to invest again because of this.

The fix is easy. If you’re worried that an investor has a conflict of interest, just talk to them about it. If you still don’t feel comfortable, try sending them a slightly “filtered” email update. But be transparent with them about why you’re doing that. In most cases, the investor will either understand or give you a good reason why your impression was wrong in the first place.

The problem arises when you stop communicating and don’t even explain why. This is never good.

file under: Blog
  • Good advice David. A really tricky solution, investors are under pressure themselves probably as much as the startup. Going cold on any situation gives room negative thinking, and kills trust. Thanks D.

  • Mixed feelings on this, as the Investor probably should talk to the startup about it, at least to figure our if there are genuine synergies or if it’s truly a competitor. I agree the entrepreneur shouldn’t act rashly… but communication goes two ways.

    • David Cohen

      fair, but the issue is that “competitive” is in the eyes of the entrepreneur in my experience. in other words, an investor may invest in a company that is not obviously competitive, and may not think to alert the potentially offended startup. this is particularly acute with high volume angels or seed funds.