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Tuesday, November 29, 2022

How Entrepreneurs And Investors Can Together Lead To a Healthy Startup Community

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The COVID-19 pandemic brought into sharp focus the issue of mental health in the workplace which had, until then, been largely swept under the carpet. While it was a no-brainer to give employees time off to recover from physical health issues and support them by paying medical bills and rehabilitation (where required), mental health concerns were largely ignored. The pandemic, however, brought the unprecedented focus onto mental health given the stress, anxiety and isolation that lockdowns around the world resulted in. Employers now realise that mental health can be a real impediment to high workplace performance and, at the same time, employees are no longer scared about the potential impact on their careers by bringing up mental health issues.


However, the start-up community is now facing a double whammy. Apart from the usual mental health concerns that impacted founders during the enforced lockdowns, the world finds itself in a very different macroeconomic environment from a year ago. When the pandemic started, central banks around the world responded by cutting interest rates to zero and embarking on programmes of quantitative easing which pumped trillions of dollars of liquidity into the global economy. This resulted in a boisterous stock markets around the world, with bull markets in all industries and sectors. From the point of view of start-up founders, this enhanced liquidity resulted in over-inflated valuations for many start-ups and funding rounds which seemed to increase at unsustainable levels.

I would argue however, that not all start-ups benefited from this excess of liquidity. Some businesses (e.g. F&B) were impacted much more strongly than others during the pandemic and the mental health toll that resulted from decreasing revenues, lack of funding, irate investors and slower sales cycles was almost debilitating. Start-ups on the other end of the spectrum which benefited during the pandemic now find themselves in a completely different place with significant monetary tightening in place across the world, borne out by huge inflation and significantly increased borrowing costs. Several start-up founders today find themselves struggling to raise funding in a global economy teetering on the edge of recession and the change in circumstances almost overnight has caught many founders unaware and unable to cope.

Start-up founders, due to their Type-A personalities, find dealing with this so-called failure even more difficult to deal with. They usually need to have control over all aspects of their surroundings. While this often leads to very successful companies and exits for investors, the toll that this takes on their mental health when things start to go wrong cannot be taken lightly. And things have started to go very wrong with most market participants calling for a bear market until the second half of next year.

I posit that investors need to work hand-in-hand with start-up founders in finding a balance between putting pressure on founders to push harder, faster, stronger and taking a step back when things haven’t been going due to external circumstances out of their control. However, this requires understanding on the part of both parties and a huge element of trust. The entrepreneurial ecosystem is replete with examples of relationships between investors and founders completely breaking down due to lack of trust. When it comes to mental (and physical health) for that matter, investors should be willing to recognise that unless founders feel good mentally and physically, there is no way that the start-up will return the 10X that the investor hopes for. In a similar vein, founders need to be willing to be vulnerable and ask for help when finding it difficult to cope. This is why I usually end every review meeting with the simple question “And how are you doing?” It takes time to build trust between an investor and an entrepreneur and I argue that an investor needs to wear many hats – from giving business advice to, in some cases, being an avenue for the entrepreneur to vent and potentially discuss personal issues which they are unable to discuss with anyone else.

Mental wellbeing, one has to fundamentally remember, is not mental weakness. In the same way that we work out to take care of our physical health, taking care of our mental health is equally important as it gives us the tools to deal with adversity when it strikes. When investors and entrepreneurs work together in developing these tools that is what will eventually lead to a health start-up community for all participants.

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