It’s easy to see the stress a market downturn puts on a company. It’s harder to see the pressure it exerts on Founders – and your relationships with your employees, customers, co-founders, and investors.

Having a great relationship with your investors is always critical to your mission and success, but perhaps even more so right now, during a macroeconomic crisis.

There’s an untold amount of upside in learning how to navigate and uplevel these relationships, in the good times and in bad.

Here’s how.

Why is the Founder-VC Relationship Unique (and also not like a marriage)?

“Your relationship with a VC is like a marriage.” Many Founders have heard it before. It’s an overused comparison in this ecosystem. I understand the heuristic, but the truth is: the internal dynamics of a Founder-VC relationship are nothing like a marriage at all.

It’s different in countless, obvious ways (hopefully you don’t ask your husband or wife to send you updates on their KPIs). One main and overlooked difference is an underlying principle which is a major source of tension: persistent information asymmetry. How you manage that principle can chart the course of your relationship with your investors.

Academics have studied the Founder-VC relationship, and found that it’s always in a state of imbalance. At each point during your relationship, one person knows more than the other person. Sometimes it’s the VC, and sometimes it’s the Founder.

Initially, it’s the investor who holds the information advantage. VCs see thousands of deals over the course of their investing careers. In addition, some of the best VCs have also been Founders themselves, so they’ve had a glimpse into your future. At this point, the VC holds a lot of the cards – and hence possesses a lot more information. Founders often don’t know where they are standing in the process; how serious the investor is, and what they can expect as the next step.

But, after the VC decides to invest, that information asymmetry will shift. You will start to gain information advantages. You can see what’s happening in your business on a second-to-second level. You have all your attention focused on knowing everything there is to know about your company – the product, the market, the employees and the competition. While the VC, who is invested in quite a few companies, just can’t have the same level of domain expertise even if he or she did have access to all your data.

The distribution of those blind spots will shift over the course of your relationship with your investors, but they will never disappear. That means that the key to having successful, long-term relationships with your investors is to manage those blindspots. That starts with remembering at all times that you have more data; that what may be apparent to you is not necessarily apparent to your investors, and that it’s ultimately your responsibility to ensure everyone is in the know.

This is especially critical during downturns – when there is often more bad news than good news, and when financial strain may be highlighting weaknesses in your company that weren’t previously on display. In these periods, you can’t afford to surprise your investors with information they should have known earlier.

Mismanagement of information sharing is a real issue. It can kill companies. I’ve seen situations where investors – unnerved by poor VC-Founder communication – slow the company down, ask for more reporting and approvals, don’t join future rounds, and don’t go out of their way to assist Founders. Not to mention they’re not likely to introduce you to others in their network if they feel you have not been transparent with them.

Conversely, I’ve seen great things happen when information and communication in this relationship is managed well. If you share, act transparently, and don’t surprise your investors, they are a lot more likely to be in your corner.

There’s a playbook for managing this relationship that’s based on both human psychology and communication processes. If you follow it, you can unlock one of the most enduring kinds of relationships one can experience: The kind where you get to build something with someone who is just as excited about it as you are, over time, in good times and in bad.

Finding Founder-Investor Fit

There’s no chance of building a solid relationship with your investors if you’re not compatible to begin with. You need what we call Founder-Investor fit. This is a whole other essay. But here’s a shortcut.

There is one golden rule: Know your investors.

Most people think they know this, but they don’t grasp the whole concept. Knowing your investors doesn’t mean simply Googling them, reading their essays, watching their videos, and memorizing their list of prior investments (do that too). It means you need to know them as people. The more you understand who they are and what their values, personal interests, and operating systems are, the better equipped you will be to build a great relationship.

There are few shortcuts you can take en route to genuinely knowing another person. Get a sense of how investors relate to Founders during the building process (not just the raising process). Ask other Founders they’ve invested in – especially Founders who have struggled or even failed – what the experience was like. That’s where you’ll really see how investors behave.

The other important source of information? Spend time with the investor. Even if they are willing to move fast and close, you need to make sure you spend enough time together.

Lean toward people you work well with, over those who offer you slightly better terms. When you are putting out fires, navigating downturns and having crises of faith, a good working relationship will pay more dividends than a marginally better term sheet.

How do you know that you will work well with an investor in the first place? Your research will yield the most pertinent information. In addition, here are some general traits.

1. You want VCs who you connect with and share similar values. This is not about fun, this is about working with people who have enough commonality so you don’t need to invest energy in building bridges from scratch.
2. You want to give preference to VCs who have been builders. Some things can only be learned by doing. You need people who know how it feels to ride out the highs and lows in the driver’s seat. This doesn’t mean that VCs who didn’t build can’t be great – but that generally requires even deeper diligence on how they supported Founders in tougher times.
3. You want VCs who challenge you with respectful, but robust intellectual debates. Without those debates, you’re missing clear avenues for improvement.
4. You want VCs with experience in your sector. This will bring you insights and speed. You don’t need to make the mistakes they’ve already made, and you do need the playbooks they already have.
5. You want VCs who have many, strong relationships. Remember, it’s not just the VC you’re forming a relationship with, it’s their army. Their network.
6. Don’t look for a friend. This is not about finding new friends. Your investors may become your friends over time, but first and foremost you want a mentor, a partner and a supporter. Make sure you don’t over index for ‘fun’ over more important criteria. As they say in U.S. elections – don’t vote for someone just “you’d like to have a beer with them.”

How to Update Your Investors

Once your investors are on board, you are now entering the stage of the relationship where Founders have an informational advantage.

The truth is: not sharing can never do you good. When your investors don’t hear from you, even if everything is going well, then they often assume the worst. Blindspots breed mistrust and rumination, and that doesn’t work in your favor later on. And if something bad is actually happening and you don’t share, then you lose all credibility the minute they learn you had the information and chose to not tell them.

Think about it: if you had to go back and ask them for more money, what position would you like to be in?

You must set clear expectations on what you will report, how often you will report it, and what those reports will look like. Also, agree ahead of time with your investors on what you can expect from them in return in terms of assistance (if relevant) or responsiveness.

To execute on your end, you need a repeatable investor update template. It should be as brief as possible, but it should include the following, preferably in this order:

1. An executive summary. This should be in the document you attach to your update email and in the actual body of the email you send. You want your updates to be frictionless for your investors. It should include:
   • Highlights. What are the achievements, wins or milestones have you surpassed? Think about sales, marketing, hiring, product or anything else that’s relevant. This should be about three to five bullet points.
   • Lowlights. What challenges, problems or losses did you deal with?
   • Requests. What top areas can your investors assist you with right now? List up to four items – you lose attention beyond that number. If one is more important than the others, bold it and explain its importance.
   • KPIs. Include the most important KPIs you are tracking in the executive summary.
2. A main update. This can either be in the attached document or in the email beneath the executive summary. Include:
   • KPIs. What were all your KPIs for the month and how did you perform?
   • Achievements. Expand on your achievements in each area: product, marketing, sales, HR, etc. Include no more than two bullet points for each domain (and if there are none, it’s fine). If you already included one of these KPIs in the executive summary, expand on it here.
   • Challenges. What were the main challenges you faced this month? This is an expansion on the lowlights section of the executive summary. It’s possible, also, that there are no more to include. But even small issues like ‘we have a problem recruiting experienced backend engineers’ will help keep investors updated (and give them easy assists).
   • Plans. Include a short description of what you plan to do next. Preferably also include your target KPIs for the next update.

The above points are must-haves in your update. The below are nice to have:

1. New Key Hires. Investors love to see new hires, especially senior people who joined the team. If you highlight new hires, include a brief bio and LinkedIn.
2. Notable Market News. This isn’t necessary in every update, but is nice to include occasionally if there’s big news. If a competitor raised a round, a new competitor emerged, or a larger company announced anything relevant this is the place to mention it. This will help your investors stay up-to-date if they’ve missed something. Alternatively, if they’ve already heard of this news – especially if it’s not positive – it’s good for them to see you are also aware and sharing.
3. Thanks. Not all Founders like to do this. But thanking your investors for their assistance in the previous month may get everyone to try harder.
4. Other stuff. Here you can mention anything else that feels relevant, but doesn’t fit into the above categories. Think: media mentions, personal updates, etc.

That’s the basic template. But there are still three stylistic and tonal notes that are important.

First: use data to tell your story. Graphs especially – visualized data always works best. General updates that lack data will feel incomplete at best, and like you are hiding something at worst.

Second: If you change your KPIs, product goals or anything tangible from one update to the next: be transparent about it. Call it out specifically. You’d be surprised how many investors “catch” Founders who are changing goals by checking earlier updates for consistency.

The third point is the natural companion to the second: Read your own previous updates. You are telling an ongoing story. Think of each update as a chapter. If you don’t read the previous chapter, how will you connect the dots for your readers?

How to Relate to Your Investors

All of the above is the communications part of sustaining Founder-VC synergy over time. The rest of this equation relies on psychology. You can’t just communicate with your investors, you must relate to them.

Remember that your investors are investing in you. Don’t let your incredible data-driven updates obscure your human intuition. The best update in the world can’t (completely) make up for poor behavior, evasiveness, or inconsistency.

The best way to avoid that perception is to follow four basic rules:

1. Make sure they, and you, know your heart and mind.

Investors love Founders who have an internal compass. It’s tough for investors to see a Founder who seems lost, or seems to be mired in doubt. Of course, they know you will have periods of struggle, but try to communicate where you want to go, even if you have to ask for help getting there.

2. Be Diligent About Responding to Feedback.

When your investors give you feedback, make it a priority. There’s nothing more frustrating than seeing a bug (or being told there is a bug by others), pointing it out, and seeing it persist. It may not be your top priority overall, but in the context of the Founder-VC relationship, it is a top priority. Deal with it fast, or at least set expectations around when you will deal with it.

3. Spend real time together.

A lot of your communication with your investors will happen over email or phone calls. But if you can, spend meaningful time with your investors. This is not quantity necessarily – but quality. This is time that will center around building bonds on a personal level.

That also means taking a genuine interest in your investors’ lives. Remember names: of kids, spouses, or friends. Remember birthdays or other meaningful dates. Follow them on social media and keep up to date with major changes. These are basic tips, but they go a long way towards fueling a genuine relationship as opposed to a transactional one.

Investors know you have no time to spare. But building these bonds is worthwhile. Of course, it could yield more avenues for fundraising, or unlock more advice. But it can also surface new ideas or efficiencies that you can’t predetermine.

4. Give Back

You are now part of the investor’s network. You add value to that network beyond just the success of your startup.

Firstly, you can add some fun into the investor’s lives. Invite them to celebrate your wins. If it’s not natural, celebrate with them separately. This may sound like a small thing, but everyone wants to experience success and connecting your investors to that feeling is valuable.

Secondly, remember that you can also add value to your investor’s world. If you run across other investments, for example, or can offer a perspective during the due diligence process, it may be worth reaching out. Don’t make this your full-time job. But each time you assist them, you increase their commitment to you.

If you follow all these rules, have Founder-investor fit, and communicate clearly, what should success look like? Your investors will feel like team members. You will want to introduce your investors to your Founder friends. And, you will look forward to investor interactions, rather than dreading them.

The Transparency Spectrum

Even in the best Founder-VC relationships, there are sticking points.

A common question is: how transparent should I be with my investors? It’s a simple question, but it causes Founders a lot of subconscious stress. We all want to make the people who support us happy. The tendency here is to think that showing vulnerability undermines your investors confidence in you. You will have a strong impulse to act like you’re killing it – even when you aren’t.

Don’t fall victim to that impulse. Always default to being authentic, as opposed to telling an idyllic story. The truth is that being vulnerable isn’t a weakness. Investors know that running a startup is tough, and especially today, many VCs have lived through these challenges themselves. They prefer to see someone who is openly vulnerable and is coping with the reality, rather than someone who is struggling and evasive.

This leads to the second common sticking point: asking for help. Again, vulnerability is a strength, not a weakness. You can and should ask for help, but do it in a targeted way.

For example, identify the value that each investor can bring (beyond money) and use it. When you ask for help in your updates, tailor that ask to each specific investor. And critically, make that ask specific. Ask for help with specific things like deck review, introductions to specific customers, hiring, etc.

When you ask for help, you probably have a problem in mind. But remember that it’s always a good idea to also ask for feedback. Feedback will help surface problems you probably didn’t even know existed.

You would be surprised at how much investors keep to themselves, just because a Founder never asks for feedback. Asking simple, general questions like: what do you think? How would you rate our progress? How fast is our speed? These questions can yield insights that would otherwise go unsaid. (It can also air out any bad feelings that may be lingering beneath the surface).

These all require gentle balancing. Should you share every daily concern you have with your investors? If you are running a real startup, that would mean four update emails a day – clearly too much communication to be valuable. But if you’re struggling to calculate how much to share, err on the side of oversharing. Your instinct will generally be to share less than you should, so by oversharing you will probably be just fine.

Navigating True Challenges and Times of Crisis

Just as there are clear moves you can make to operate your business in a downturn, there are moves for managing your investor relationships in a downturn as well. You must double down on your relationships with investors in hard times.

You can begin this process by putting yourself in the investor’s shoes. You know what your top problems are. Understand what stresses may be pulling at them as well. There are financial risks, reputational risks, regulatory risks, concerns about future funds. Think critically about how that might be influencing your investor’s thought processes.

An easy way to get into this mindset: If your investors are hosting any programming related to macroeconomic events (like dinners or conference calls), attend them. Again, this seems simple or even trivial, but it will yield insights that you can’t anticipate.

Once you understand what the investor environment is like, take stock of how the current climate changes the information asymmetry structure. Likely, investors are under additional pressure (just as you are). They may fear blindspots even more when the entire world seems chaotic and unpredictable.

You can proactively manage this. Be extra responsible in times of uncertainty. Update your investors on challenges quickly – and be sure that they never hear about it from someone other than yourself. You don’t want your investors wondering if you’re sitting on a problem, or intentionally obscuring reality.

Why do we need to double down on the Founder-Investor relationship right now?

We’re in a moment of unprecedented change. We’re coming off of record levels of fundraising, and one of the fastest moving startup ecosystems in decades.

In 2021, startups raised more than $330 billion globally, more than double 2020’s record-setting figures. But we are shifting from record highs in startup history to a critical low.

There are a lot of new Founders out there too – Founders who likely raised at high valuations, enjoyed a soaring tech market, probably built remote or hybrid teams. Founders who are now facing a downturn that is likely to be long and challenging. Founders who probably never had a playbook for managing their relationships with investors – and who need one now more than ever.

Many new Founders forget that investors’ relationships are a critical resource during times like these, or perhaps are looking for insights on how to unlock that relationship. Those who manage to do so and build genuine trust will come out of this moment far stronger than the rest.