Buyer's remorse is the sense of regret after making a purchase, usually associated with big-ticket items. And it is not just limited to the amount of money invested, but also time and effort, and also the opportunity cost. Sometimes you are disappointed with the service, and most of the time this stems from have an expectation mis-match! If you are not clear about what you are getting yourself into, it will result into a buyer's remorse!
The same can be applied to an investing relationship. Between an investor and an entrepreneur.
To word it appropriately in investing, a buyer's remorse is called alignment of interest. If the interests are not aligned by way of expectations, prior agreement on positive/negative outcomes and a general thought process behind an engagement, then the relationship is bound to face hiccups along the road. To solve this problem, we prefer to be aligned, we prefer to be on the same page before we put money in the bank.
We call it Alignment of Interest. Before we agree to the investment, as a part of our Conditions Precedent, we like the entrepreneurs to share a small document or an email that enlists the following in a broad detail:
We are asked, why do you ask for this? Especially because we cover all this during the time of the diligence? The simple reason behind requesting this document is to have a reference material that is created with the intent of honoring the commitment. We also understand that planning is paramount, however no plan works 100%.
We also like to make investments in tranches. Our tranches are based on the achievement of certain milestones that are measurable. This ensures two important things: milestones help measure success, and entrepreneurs have a steady inflow of capital.
We do not like to leave things open ended for the sole reason of avoiding ambiguity in the future. We like to front-end the dirty work by way of diligence and tough conversations so both the entrepreneur and the investor understand where they stand. The easiest way to ruin a relationship is to avoid difficult conversations to the point it can break the very relationship. We enter a relationship with the purpose of playing the long game. And we surely do not like unhappy relationships.
Being on the same page is a fantastic way of maintaining trust, honesty, transparency, and integrity in a relationship.