Home For Better, For Worse, For Richer, For Poorer: The Investor/Entrepreneur Marriage

For Better, For Worse, For Richer, For Poorer: The Investor/Entrepreneur Marriage

It’s not uncommon to hear the relationship between investors and entrepreneurs described in terms of dating or marriage. As VC Nat Goldhaber writes in a VentureBeat guest post, “Venture capital, at its core, is the business world’s equivalent of a long-term, nearly inseparable, relationship. You are marrying your investor.” And Bplans.com founder Tim Berry describes investors as spouses. “This is important,” he writes. “You’re much better off with no investment than with incompatible investment. Incompatible investors is as bad a situation as incompatible spouses.”

The metaphors of dating and marriage can be used to talk about the strategies to woo investors, but also the considerations as to whom to court. As with any potential partnership, it’s important to ensure that the match is a good one. Both parties should have a lot in common. They should be open and honest with each other and should be good communicators. They should be able to resolve their differences and come to working agreements when they (inevitably) disagree.

Zappos’ Unhappy Marriage with Its Investors

Zappos CEO Tony Hsieh wrote an article for Inc.com last week that brought to light some of the dangers when this marriage between investors and a startup is an unhealthy one. Titled “Why I Sold Zappos,” Hsieh’s article is clear: he sold under pressure from his investors.

Hsieh relates the history of the online shoe and apparel store, emphasizing the importance that the startup placed on the company culture. Hsieh says that “the plan was to grow sales to $1 billion by 2010 and eventually go public.” But his investors, Sequoia Capital, wanted a substantial return on their investment and, as the economy took a downward turn, became nervous.

Hsieh contends his Board of Directors never understood or appreciated his commitment to the Zappos company culture. They referred to it as “Tony’s social experiments” and argued the CEO should “to spend less time on worrying about employee happiness and more time selling shoes.

When Hsieh met with Amazon CEO Jeff Bezos in April 2009, he felt as though Amazon “had come to appreciate our company culture as well as our strong sales.” Describing a better relationship and understanding between his company and Amazon than existed between his company and his Board, it’s no surprise, perhaps, that Hsieh uses the word “marriage” to describe the Amazon-Zappos union. “We saw the deal less as an acquisition than as a marriage. An all-stock deal would be analogous to a married couple opening a joint bank account.”

Despite the happy ending with Zappos’ “marriage” to Amazon, Hsieh’s story also serves as a cautionary tale to startups. It points to some of the dangers of unhappy relationships with investors.

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