How can I get out of dysfunctional investor relationship to focus on growth?
I’ve run into real trouble with my VC backers. What started as a disagreement over budgets has snowballed into a dysfunctional relationship where we are wasting more time arguing than agreeing strategy. I’m keen to get on with building the business, but I can’t see how it will be resolved. Have you any advice?
A. Dave Richards of IGF writes:
Equity is very different from debt. Changing bankers is relatively easy, but changing shareholders is not. The first thing you need to do is diagnose what the problem is. Has the breakdown in the relationship been caused by a single fundamental problem or is it a mixture of different issues?
Disagreements between investors and owner-managers are often down to unreasonable or inadequate reporting requirements, or a difference in view over the need for consultation over key decisions. Problems can also arise through disagreements over remuneration, strategy, performance and financial control.
One step you could take is to get an outside view from the independent NEDs, the chairman or your auditors, which will give you an idea whether either side is acting completely unreasonably. However, the best option has got to be to discuss any problems openly with your VC.
If you can’t resolve the issue then at least agree a process for mutual benefit. Disputes within a company generally lead to the destruction of shareholder value. If you don’t work through this together you’ll both end up worse off.
Consider all the options, such as one party buys the other out, bring in a new VC, or sell the business. None of these options should be considered lightly, but if the other stages have been exhausted, they can help achieve a pragmatic and acceptable resolution