Often the investor/founder relationship is what Alfred Adler would call a ‘vertical relationship’. Vertical relationships are like the typical parent/child, teacher/student, boss/employee relationship — they are hierarchical. Is that the kind of relationship you want with the founders you invest in as an angel investor?
The objective should be to seek the truth, whatever that is, but once money is involved it can skew a relationship and you should think about what this might mean for you and the founder. Did you get the whole picture in the pitch and, now that you’ve ‘paid’, will you get the whole picture in the future? Will the founder hold off telling you the bad news until they have some good news to go with it? Will they lower their ambition so it’s easier to hit targets and keep you happy?
The answers to those questions depend on the kind of relationship you’ve already established and how you manage that relationship going forward.
Better, Adler said, is to have ‘horizontal relationships’. Horizontal relationships are egalitarian and both sides treat it as such.
But note; horizontal relationships are not laid-back relationships — having a horizontal relationship means that each side has the confidence to be honest with the other, they treat the other as an equal and neither side tries to manage or manipulate.
Occasionally relationships between angel investor and founder may seem more vertical or begin to creep in that direction, but still, even when you might feel like you’re mentoring/lecturing because you have more experience or a different perspective, you should be coming at it with the objective of getting to the truth for the founder’s challenge or opportunity.
Start as you mean to go on
Adler believed that all problems are interpersonal relationship problems and he theorised that if you start down the road with one type of relationship then you’re likely to gather more of that type. However if vertical relationships are best avoided, and it can be difficult to have horizontal relationships when money is immediately involved, then how can you avoid having vertical relationships as an angel investor?
Observe the founder in different environments to see how they might form relationships — do they treat everyone in the same way? Do they fawn on some but look down on others?
Talk to their team — ask a variety of team members at all levels exactly what they do and what, in their view, could be done to make the company more successful. Are they confident and empowered or do they appear subservient?
Ask the founder about their tasks — do they know what they can do and what they can’t or shouldn’t do? Adler said people must separate their own tasks from the tasks of others. Focus on ‘your tasks’ — the things you can control — and not anyone else’s1.
My objective, as I’ve written many times, is to understand the quiddity of people. It is not to convince people to change themselves or their minds, it is to observe and then decide for myself2.
Can you only have horizontal relationships as an angel investor? I think so. and what’s more, the more you start the more you'll get.
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Important: None of these posts are investment advice. If you are thinking about investing you should seek the advice of a suitably qualified independent advisor.
The Courage To Be Disliked by Ichiro Kishimi & Fumitake Koga was my actually first introduction to Adler.