The Art of Managing Investors When Your Startup Is Struggling - TFP 11/20

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📰 Today's Edition:

Okay, let's talk about something that makes every hippocorn’s stomach drop.

You've raised money. You had that champagne moment. Maybe even got some nice press coverage.

But now things aren't going according to plan. Your metrics are flatlining. Or worse, declining.

The product-market fit you thought you had? Maybe it was just wishful thinking.

And those investors who believed in you enough to cut checks are probably wondering what the hell is happening.

This scenario is way more common than you think. In fact it’s like every startup :).

The Golden Rule

There's a management principle that the Hustle Fund team swears by:

Never surprise anyone.

Think about it like this: when you manage people correctly, performance reviews shouldn't contain any shocking revelations. You've been giving feedback all along—good and bad—so nothing comes out of left field.

The same rule applies to your investors.

Especially when things start going sideways.

The biggest mistake founders make is that they hide the bad news until it's too late.

Don't do this.

Today's investors aren't the distant VCs of 20 years ago. They're partners. Collaborators. They want to be in the trenches with you and not hear about the problems when it's already game over.

Your Communication Lifeline

Every month, update your investors. Yup. EVERY. MONTH. Especially if you're in pre-seed or seed. It's a must.

Not quarterly. Not "when something major happens”.

Monthly.

This cadence is perfect because it gives you enough time to run experiments and gather real data, while keeping everyone informed about what you're learning.

These updates become especially critical when things aren't going well.

They're not just status reports—they're your opportunity to show that you're being strategic about the challenges you're facing.

Include:

• What's not working (be honest)

• What experiments you're running to fix it

• Specific asks for help (like finding the right hippocorn for the sales position)

Stop Playing Startup Hero

When things get tough, your instinct might be to hunker down and figure everything out yourself.

But you have talented operators on your cap table. You have founder friends who've been through similar situations. So use them.

Having trouble converting sales? Reach out to that former VP of Sales who invested in your seed round.

Struggling to hire engineers? Talk to the technical founder in your network who just built an amazing team.

Can't figure out why users aren't sticking around? Find someone who's nailed retention metrics.

And be specific in your asks.

Don't just say, "Things are rough, any advice?"

Instead: "Our demo-to-close rate dropped from 40% to 15% over the last month. I think it's our new pricing model, but I'm not sure. Could I get 15 minutes with you to walk through what we changed?"

Map out who in your network is good at what. Then make targeted requests.

This is preventative medicine for your startup.

Think of problems like health issues. Better to treat a cold than wait until it becomes pneumonia.

When Everything You Try Still Doesn't Work

Sometimes you do everything right and it still doesn't work out.

This is a-ok. Many successful founders had first companies that didn't make it. The idea wasn't quite right. The timing was off. The market wasn't ready.

If you've been transparent with your investors all along, your next moves won't be surprises. They'll be natural progressions of the story you've been telling together.

You have three main options:

The Pivot

If your updates have been documenting experiments that point toward a new direction, a pivot makes sense.

Your investors should understand the rationale because you've brought them along on the journey.

The Holding Pattern

Sometimes the idea is right, but the timing isn't.

If you believe the market will eventually catch up, going into "zombie mode" might work. Dramatically reduce your burn. Hold the line. Wait for conditions to improve.

This requires patience and clear communication about why you think waiting will pay off.

The Wind-Down

The hardest decision: shut it down and return capital.

But returning even a small percentage of invested capital—say 10%—it means everything to investors.

It shows you're a responsible steward of their money, even when things don't work out.

Those investors often become your most loyal supporters for the next venture.

They remember founders who took care of them.

Now, go and send that monthly update!

Dunky the hippocorn in the loop, from Hustle Fund

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