An unbalanced relationship – startups and investors
Working for startups is awesome! People are easy-going, everybody gets to do a little bit of everything and founders are not your bosses but your compañeros. You have a common goal and the last thing you need is an outdated company structure, an antiquated pecking order. Who needs hierarchy? We wanna be anarchy.
There is just one string attached to this autonomous and creative working life: For all of it, it takes money to achieve and sustain. The quest for funding – a daily life challenge of a startup business, sometimes a nuisance but necessary nevertheless for the fulfilment of your dream. But what will happen to your independence? Does it vanish as soon as investors enter the picture?
So we can’t help but wonder: Whose slave does money make you?
It’s all about dependencies…
Before turning to the startup-investor relationship, we have to think about autonomy and dependency more generally. Talcott Parsons, the most prominent US sociologist in the middle of the 20th century, offers an interesting perspective on this issue. The starting point of his theory is the relation between individual and social interests. In traditional societies one was expected to follow the will of the family in matters of work, marriage and religion. With the Enlightenment and industrialisation starting in the late 18th century, traditional norms and hierarchies have gradually lost their grip.
If we follow the theory through, two questions pop up: Is a society of free individuals possible at all? Wouldn’t people simply follow their egoistic motives and destroy all social institutions? Parsons argues that with modernisation, hierarchies have been transformed into functional relationships. As teachers, doctors, lawyers, or bankers, people fulfill specific roles that are related to the task at hand; dependency and authority are strictly limited to this one particular field. For example, when evaluating a business idea you might turn to a lawyer concerning copyright issues and to a banker in order to figure out requirements and possibilities for getting a loan. Relying on flexible roles, individuals are not dominated by a single authority but influenced by many different actors and institutions.
…and all about professional hierarchies.
Although traditional norms have vanished, new formal standards have been established, many of which are rooted in professional knowledge providing them with general authority. Parsons illustrated this by pointing to the specific characteristics of the doctor-patient relationship.
In order to be treated by the doctor, one has to adopt a so-called “sick role”: The sick is not responsible for his or her illness and is exempt from certain social obligations – work being the most important one. At the same time, the sick has to seek professional help, cooperate with the medical staff and make every effort trying to get well – which includes avoiding harmful behaviour. Not only must the patient rely on the doctor’s knowledge, he or she needs to cooperate, too. We can see that this relationship is a matter of mutual rights and obligations. However, by monopolising medical expertise, titles and work, the medical profession clearly installed a hierarchy. The unknowing patient is often at the mercy of his or her doctor.
However, professional power structures are only temporary ones and can always be challenged. Today, well-informed patients challenge doctors’ diagnoses (Don’t say you never googled that pain in your little toe!) and frequently obtain a second opinion while different branches of alternative medicine are flourishing. Parsons partly anticipated this tendency by diagnosing the 1960s as an area of transition: No more professional rationality! Hello, affective and expressive culture!
Startup meets investors – who is tipping the scales?
Turning to Parsons’ model once more, we are looking for hints to help understand the startup-investor relationship. Venture capital (VC) investors as well as business angels usually offer financial support in exchange for a share of equity. This relationship has a social function, focusing on the need of an economic niche: Young, promising businesses receive financial support while being exempt from the obligation to provide collaterals; at the same time, startups have to seek professional help, cooperate with investors and make every effort to increase their values. This sounds like an egalitarian relationship with both sides having certain expectations, rights and obligations. Is it, though?
Well, basically it is still a good portfolio that VC investors and business angels are interested in. Considering that their money is at stake, they cannot just limit their evaluation to how much they like a great idea but need to rely on some well-founded and substantial know-how – presented to them in a creative but also professional form. So yes, investors and money do have a certain power over startups. However, being business people themselves, the startup folk shares parts of their investors’ expertise. But what type of expertise are we talking about?
There surely is no university degree or professional code of how startups can attract investors. However, one finds tons of advice on the internet about writing a business plan, creating a nice power-point presentation and delivering a convincing pitch. Beside these “have-to’s”, there are also quite a few no-go’s when contacting a potential investor. You can get a glimpse of those in this post by a partner of the business angel fund SpeedInvest.
If we were to name three points that the above-mentioned post makes, those would be:
- Don’t lose your sense for reality, forgetting all your competitors out there
- Keep it plain and simple, but
- Don’t forget to do the basic math.
The bottom line is, the startup-investor relationship is not free of norms and hierarchies – in fact so much so that these hierarchies make “Flatland” a myth.
Yet with the startup scene, we are still talking about a sector where it’s not simply about knowledge and expertise, but also about your individual commitment. It’s the arena where the expressiveand emotional enthusiast meets the sober and rational businessman. So it’s all about finding the right balance between the two. And there is no handbook online to help you find out about the secret formula of how much to apply from both ingredients.
About the author:
Alexander Hirschfeld is a 29-year-old sociology Ph.D. candidate who has studied, worked and lived in Bamberg, South Carolina, Vienna and New York. His doctoral thesis is on the changing perception of the human psyche, which he investigates by analysing the emergence of the so-called Burnout Syndrome. His main interest lies with sociological theory, which means lots of reading and knowing the nicest libraries in every city by heart. Apart from that, he enjoys cooking, soccer and watching the same old movies over and over again. Alex lives in Berlin.
Read more about the origins of the “From the sociologist’s notebook” series by our co-founder: Introducing: From the sociologist’s notebook
Here is the rest of the series:
Part I: The habitus of IT entrepreneurs and startup geeks by Manon Pierre
Part II: Commitment turned commodity? by Alexander Hirschfeld
Part III: Is God an Entrepreneur? by Alexander Hirschfeld
Part IV: Startups, buzz, and glory by Manon Pierre
Part V: Is the party over? Startups and the experience society by Alexander Hirschfeld
Part VI: One startup culture for all? by Manon Pierre
Part VII: A favour you can’t refuse by Alexander Hirschfeld