Creating a Trust Zone Between the Entrepreneur and the Founding Investor

By Fernando Berrocal

Trust between a startup founder and a small business investor is a crucial component for success when you, as an entrepreneur, are in the startup industry and want to thrive in it. However, finding reliability may be quite challenging nowadays, especially for first-time entrepreneurs without any prior board experience. But even seasoned business owners may misjudge when selecting their investment partner—either by over-indexing for a talent that was absent from their previous board, or by adhering to a formula that might not be appropriate for their current venture environment.

Trust Zone

It can be very unpleasant to get it wrong, but several instances stop businesses from accomplishing their main venture goals. When you are raising your first round of funding (sometimes termed pre-seed funding from a founding investor who is prepared to get you very active in your startup organization, creating a trusting environment becomes vital for both parties involved. Startup investors occasionally use an “incubation approach” when doing this.

As early-stage investors, incubators serve as thought partners and sounding boards for entrepreneurs as they develop their business ideas, helping to provide the groundwork for future businesses. The recommendations (and some few examples) we will provide in the following paragraphs will act as a guide for startup owners to create a trust zone between themselves and founding investors:

  • Incorporating Founder Instincts: Several pivots are a necessary component of establishing a business, creators must collaborate with investors who are at ease taking on risk. When doing that, these entrepreneurs must learn from the instincts that take their investor’s counterparts.  They will offer founders the flexibility and encouragement to take chances when they chose to pivot and launch a customer-focused business.

Venture Capital

For example, there were the application taxi cabs startups that are worldwide recognized nowadays. Even though business legislation was not created for this kind of service in many cities around the world (due to the innovative nature of that service), the startup started commercializing the service of that application—and was very successful. They were able to hold a successful public offering, which valued the firm as a ridesharing pioneer, by acting quickly and building brand value, momentum, and authenticity around it. The legislative part is still being discussed today in those cities, however, the different taxicab apps still work and are more popular than ever.

  • Accepting Unusual Business Ideas and Unusual Startup Founders:  Everybody in the same business will ultimately respect a fantastic business that was founded by an outsider player or a business visionary when they obtain the success everyone will want. Those players in that industry will eventually try to replicate that form of business with their unique flavor and most of the time will not be as successful as the first innovative player. That is what occurred with Netflix and the other streaming platforms that appear after it (HBO Max, Disney+, Amazon Prime, etc.).

The irony of the Netflix story is that the people behind it went to Blockbuster (the main player in movie distribution at that time).  It was in the middle of the 2000s, and the business idea was rejected. Nowadays, Netflix is the main player in the streaming service and blockbuster has one store left worldwide. A startup founder must locate an exceptional (and brave) investor who is willing to take a risk with them, even if it is outside of their area of expertise or past performance.

Creating a Trust Zone Between the Entrepreneur and the Founding Investor

  • Recruiting Important Talent To Complement the Founding Startup Team:  Self-aware founders often become aware early on in their entrepreneurial path that they are lacking a vital ability to complete the startup team. Finding the perfect individual, who might not be in their network, might help them increase the effectiveness of their business. Sheryl Sandberg and Facebook, founded by Mark Zuckerberg, are the most well-known recent example of founding stage cooperation. Facebook's trajectory was propelled significantly further than anticipated by Sandberg's strong entrepreneurial talents. Another way might be to compliment yourself with people that have talents in marketing, innovation, or financial skills if you are a more skillful person in technical skills.

  • Collaborating With Businesspeople Who Have Bigger Vision: Engineering and biological entrepreneurs, for instance, follow the one-product wonder or platform business road. The latter is more difficult but results in enterprises that last longer in time. In retrospect, some businesspeople may have a similar vision to yours, but in certain particular areas, they may think even more expansively. Don't be hesitant to work with these types of business players because that may be highly beneficial for your business in general and both parties can learn from each other.

In conclusion, we can summarize the process of building a renowned business with the following phrase: "Building an iconic business is a marathon, not a sprint". Building a trusting relationship with your initial startup investors, who are ready to put in the work to help you amplify and accelerate your goal and impact, may pay off for founders and investors alike. And as long as this model is successful, there will be numerous businesses that alter the environment in which we live, work, and play.

Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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