Investor/Founder Etiquette - Who Should Pay?

Even a "simple" lunch meeting can become a minefield of possible faux pas when you're a founder. 

After a founder and an investor briefly chatted at a startup event, they agreed to meet for lunch. As they enjoy their lunch, they discuss the venture capital (VC) firm’s investment thesis and catch up on the founder’s progress while getting to know each other better. The conversation is going well... and then the check slides onto the table.

Who should pay for lunch?

Simple social interactions are important for fueling partnerships that build world-changing companies, and while seasoned founders and investors have learned how to navigate these interactions, new founders can sometimes face some awkwardness that holds back their startup’s progress.

So, how do you, as a founder or an investor, navigate the often unwritten etiquette of venture capital? Let’s look at this situation from each point of view. 

The Founder

Founders are keenly aware that they need capital to grow their business. They are personally investing precious time and resources into the success of their company and actively seeking out others who share a similar vision of the future opportunity. A founder looking for venture capital investment is prepared to literally sell a piece of their company, and there’s a lot at stake in choosing the right investor. Even simple social interactions with a potential investor, such as grabbing coffee or lunch, are teeming with pressure.

A founder wants to put their best foot forward. Paying the check could, arguably, be a sign that the founder is proactive and decisive. When a founder is in fundraising mode, they might fall into the mindset that investors have all the control in the conversation because the founder is the one that needs the funds. Choosing a meeting place and paying for the check can bring a feeling of control over at least some of the situation. Paying could also be a sign of gratitude to the investor for taking the meeting.

The Investor

Assuming their fund is active, venture capital investors, by definition, have capital to invest in startups. The literal job of a venture capital investor is to explore opportunities and deploy capital in exchange for equity in startups. This means that investors need to meet founders and learn about opportunities. To facilitate this, most venture funds have a budget allocated to exploring opportunities such as travel to meet founders as well as a budget for business meals and drinks. Investors are often accustomed to picking up the tab.

Venture capital and angel investors are always looking for signals…small glimpses into what it would be like to work with this founder in the future. An investor is looking for signs of how a founder spends money and may think that a founder eager to pay the bill is not careful with their funds. This may cause the investor to wonder how freely their investment dollars would be spent. On the flip side, the investor may see a founder paying as a sign of confidence and positive start to, what could be, a long working relationship.

A Variety of Opinions

Cathy Skinner lives in St Paul where she is building NXgenPort, a medical device plus digital health company dedicated to novel remote monitoring of cancer patients. Cathy is an experienced founder who has developed a targeted approach to fundraising with a list of 10 questions she asks investors to ensure there’s a fit early on. When asked who should pay for coffee/lunch/drinks with an investor, Cathy emphatically replied “investors should pay. Investors have the money and I have a fiscal responsibility to manage my company’s resources [when seeking investment].”

Jeremy Neren, Twin Cities area resident, is the past co-founder and CEO of GrocerKey (acquired last year) and is now the VP of Investment Accelerators at gener8tor. Jeremy shared his advice and experience from both the founder and investor sides of the table. As a founder, Jeremy said both parties should “use common sense. Show people you care and that you’re thinking of them and it goes a long way.” He said the question of who should pay “depends on who is providing value to whom. If the investor requested the meeting, the investor should pay. If a founder is asking something from the investor beyond cash, like they’re asking for advice, then the founder should pay.”

In an informal LinkedIn poll, 60% of respondents said the investor should pay. Interestingly, investors seem to most often indicate that they should be the ones to pick up the check. A total of 27% of poll respondents, most of whom were startup founders, believe the founder should cover the bill. As a whole, entrepreneurs were more split in their answers, with many founders citing they should pay each time while others believe the investor should.

So…who should pay?

While there’s no definitive answer that fits all situations, the general consensus indicates it’s appropriate for the investor to pay the majority of the time. But other, very valid cases could be made that the founder or whoever asked for the meeting should pay, or the check should be split and each pick up their own.

Regardless of who pays, there’s no doubt in Jeremy Neren’s mind about who should follow up. “I encourage every founder to be the first one to follow up. [Be] the first one to send the calendar invite. Be extra prepared and do all the things you can to demonstrate that you’re hungry. Be mindful of how you treat people out in the world.”

Author’s Note: Some founders are more likely to wrestle with the social awkwardness of deciding who should pay because of complex social norms layered on various interactions. Unfortunately, in startup circles the proxy often used to describe the investor/founder dynamic is one of “dating,” the term sheet is a “proposal” and investment is described as “marriage.” We know that over 91% of venture capital investors are men so, for a moment, let’s consider the experience of a female founder seeking investment. She is very likely to be meeting with male investors the majority of the time so when the male VC pays, there could be competing signals in her mind. “It’s surely not a date, it’s a business meeting…but it’s “dating” in the context of investment.” Do you see the confusion that can be caused? Conversely, consider when a female investor tries to pay the check after a meeting with a male founder. Does this complicate the question of who should pay? Do old societal norms trump industry norms?

I chose to write about this topic because, as both a founder and as an investor I’ve seen awkwardness play out in real life many times from each side of the table. It’s been a hot topic of private conversation with mentors, fellow investors and in founder circles but rarely bubbles up as a broader discussion point. I hope to spur thought and conversation around the topic because, while seasoned founders and investors have learned how to navigate these interactions, new founders may be feeling some awkwardness that holds back their startup’s progress. Simple social interactions are important for building relationships and fueling partnerships to build world-changing companies.

When in doubt on how to act, let your EQ be your guide.