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January 22, 2014

Only Good News ... Is Actually Bad News

by Craig Shapiro

One of the best pieces of advice I ever received came from an investor in Collaborative Fund. He was ready to invest in our fund, but he wanted to make sure I understood something.

Mistakes happen. It’s inevitable and everyone makes them. But it’s important to be transparent and not sweep those mistakes under the rug.

In my case, he was telling me:

“Some of your investments will fail. That’s okay. What isn’t okay is you pretending like everything is going well when it isn’t. You might be able to get away with it for a short period of time, but it will eventually catch up to you. We will find out and you will have made a much bigger mistake than a poor investment.”

I give the same advice to our portfolio companies.

It’s hard to be an entrepreneur. I know that one of the most difficult things to do is to report bad news, especially to someone who has trusted you with their money.

When you update your investors, be honest, tell the whole truth, and give context. Your investors want you to succeed and they understand that virtually all mis-steps can be fixed. But that means they need to know what challenges you are facing, if there’s going to be any chance of fixing them.

It concerns me when I get consistent updates that all is well only to hear later that a problem has been allowed to grow and snowball into something much bigger and less fixable. I try to think of that feeling when I have to update Collaborative Fund’s investors and have less than rosy information to share.

So this is what I try to do: Be up-front. Figure out the problem. Create a plan to reverse or minimize it. And own up to it.

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