2 VCs and 1 founder on how to break bad news to investors

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This is a Discuss post, where we feature short but insightful opinions from the Asian tech community on startup, entrepreneurship, and tech topics. Got a topic or question to suggest? Drop us an email or leave a comment.

When it comes to startup-VC relations, nothing causes tension more than a piece of bad news—running out of cash, a quitting founding member, etc. While many founders may think that breaking bad news to investors is an art in itself, the three people we spoke to say it’s much simpler than that.

Here’s their advice.

Editor’s note: Answers have been edited for clarity.

Clairine Runtung, investment manager at Convergence Ventures

First and foremost, be honest and transparent when sharing the news, and communicate the initial problem and proposed solutions.

Bad news is inevitable. I find that it’s much more respectful and mature to share your skeletons but also reflect on what has gone wrong, lessons learned, and the strategy moving forward. If you’re stuck with a problem and can’t seem to come up with a solution, ask. When it comes to bad news, we don’t prefer surprises. We’d much rather a founder be aware of this piece of bad news and share and discuss it with us.

What should founders not do when they need to share bad news? Not think through how to handle it. People can tell if you are thoughtful and sincere. If a founder acts like he/she doesn’t care, it will show and it won’t be good.

Also, don’t panic. Stay calm and walk through the situation with the investors. Don’t be afraid. Rather, switch the mindset such that investors understand that the focus is not on the bad news, but on learning from the mistakes and moving forward.

There are three steps to breaking bad news:

1. Understand the “5 Ws and 1 H” components of the news, including the facts, data, situation, etc.
2. Think about the solutions and propose them during the meeting. If possible, set up an in-person meeting vs a call. Avoid sharing the news over WhatsApp or text if possible.
3. Ask questions genuinely and stay objective.

Let’s discuss