Infidelity and Startups
June 25, 2009
Today marriage seems like a fleeting institution, between 30% and 60% of married people will be unfaithful during their marriage. Just yesterday Mark Sanford, the governor of South Carolina, confessed his own adultery in a twenty minute act of self assassination. Bill Clinton eventually admitted his own infidelity and like it or not it has marginalized him forever. Why do we care about someone’s personal relationships? Simple, the amount of trust we place in someone is directly proportional to our expectations of that person.
What does infidelity have to do with entrepreneurs? A lot. When you first start building a business you put quite a bit of trust in your partners. Would you go into business with someone who was actively cheating on his wife? In general I would hope your answer would be no. If someone was willing to betray their spouse, would it be a stretch to think they might betray you? Despite this obvious point, many entrepreneurs choose to ignore the personal foibles of potential partners. This may seem to be the mature decision - i.e. someone’s private life should remain private, but it isn’t necessarily the smart decision.
Investors do quite a bit of checking into the entrepreneurs they back. Credit checks, background checks, interviews with classmates from college not to mention your Facebook page and Twitter account. You would be surprised what they dig up. The amount of money they are planning to put at risk is directly proportional to the level of diligence they will conduct on you and your team. Several investors I talked to were quick to suggest they would punt on an investment in a company with a key employee who was committing adultery. One investor told me he would make the investment, but actively seek to replace the unfaithful founder. Another suggested he might put a morals clause into the founder’s employment agreement to take advantage of the founder’s weakness. Eric Engineer, with Sevin Rosen Funds here in Dallas explained,
“It would certainly make me question his trustworthiness as a business partner and significantly hurt his chances of an investment. I’ve found that people who regularly lie start to feel comfortable doing it; so even if that pattern of behavior starts in his personal life, it’s likely to bleed into his business dealings with employees, customers, partners, and investors.”
Charlie Humphreyson, a venture partner in HO2 and an entrepreneur himself suggests,
“Fidelity/Adultery is a personal issue and a character issue. It is the responsibility of the investor to do his/her due diligence and put context around an investment. Just as a product needs context in the market, character issues need context as well. I expect intellectual honesty and openness when it comes to entrepreneurs and so my willingness to invest would be based on how I learned about the adulterous situation and how the entrepreneur communicates. Just as in politics (Clinton, Spitzer, Edwards, and now SC Gov, etc.) performance on the job is rarely affected by fidelity, but trust affects everything. In the end, investment decisions are based on confidence the investment will be in the hands of good stewardship and the risks the investor is willing to assume.”
Being an entrepreneur is risky enough, why add additional risk by going into business with people you know to be dishonest; even if that dishonesty only manifests itself in your partner’s personal life. If there is a good reason for his infidelity (is there ever a good reason?) you should consider how customers, key employees or investors would react if they were to learn of his various skeletons.
