advertisement
advertisement

I may be getting sued. Should I tell my would-be investors?

Yes, you tell them. This. Is. Not. Negotiable.

I may be getting sued. Should I tell my would-be investors?
[Illustration: Kreatiw/iStock]

Editor’s Note: Each week, Fast Company presents an advice column by Maynard Webb, former CEO of LiveOps and the former COO of eBay. Webb offers candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.

advertisement
advertisement

Q. I am about to get money from investors. I just got hit with what could become a patent infringement lawsuit. Do I tell my backers?

—Founder of fast-growing San Francisco-based company

Dear Founder,

Yes. You tell them. One hundred percent, you tell them.

We are often faced with things that we don’t want to do, and there are many different ways to solve for these situations. But if there’s one rule to help you determine which tack to take, it’s this: You want people to feel that you were reasonable and fair in the approach you took.

Reverse engineer the situation and put yourself in the investor’s shoes. What would you want to hear from a company you are about to invest in? You would expect to hear the truth. That’s exactly what you should give them.

advertisement

It never makes sense to avoid a difficult situation and hope it goes away. It won’t. Your best approach is to embrace it and solve for it.

Here’s what I think you should do:

  1. Deal with this immediately.
  2. Be honest about the situation. It’s okay that you don’t have all of the answers. Share what you do know.
  3. Show integrity. By being forthcoming about this information you are demonstrating integrity.
  4. Have empathy for both sides.

When you are in a situation that is gnarly and ugly, you have a chance to lean on and build your character.

I believe that people will see you have integrity and they will still go through with the investment. Similarly, I believe that if you cover this up you reveal a different side, one that is not attractive, and when it comes to the forefront, people could be disenchanted with how it was handled.

advertisement
advertisement