An Honest Approach To Investor Relations
AUTHOR: Caitlin James
As a founder, you have a full plate when it comes to operating and growing your business. If you’ve raised capital from investors to support your company, congratulations! Fundraising is no doubt a challenging process, and securing any investment is an achievement worth celebrating. Now that you’ve landed some funding, you may be eager to focus all of your attention on putting those resources to good use and give investor relations a temporary backseat, especially if your next round is a long way off. However, if you aren’t thinking about how to maximize the value of your investor relationships beyond the transaction, you may be missing out on some significant value.
More Collaborative Times
The times of the “set it and forget it” transaction mentality are fading away, as more private investors attempt to bring a collaborative, entrepreneurial spirit to their approach with the founders they back. This trend makes sense given how many successful entrepreneurs dedicate portions of their exit wealth to private investing (in a variety of forms). By keeping investor relations in focus even when not actively fundraising, founders can unlock meaningful collaboration to further promote the success of their business.
In some scenarios, investors can act as an extension of the founder’s team, bringing not only capital, but also expertise and networks that can be put to work on behalf of the company. An investor may bring knowledge of your specific market, or valuable managerial and operational experience. Both founders and investors are incentivized to want to see the business succeed, and investors are often very willing to contribute more than just their capital, especially as private investing is often regarded as a passion pursuit for many investors. Ultimately, if you can build a base of investors with relevant backgrounds, you’ll have even more collective knowledge to draw from when formulating strategies and navigating obstacles (and of course raising follow-on funding).
The Importance of Transparency
In an age where so much emphasis is placed on the importance of privacy, we wanted to make it a point to discuss how transparency can actually be one of your greatest allies. Transparency is key to gaining the most out of your investor relationships, as investors can be most helpful with advance notice of company developments and news, particularly if the news is bad.
When Challenges are Openly Addressed, Founders Maximize the Potential Impact of their Investor Base
While it may be tempting to craft only the most optimistic narrative for investors, honest communication about the company’s status and needs will be more beneficial in the long-run as opposed to a “fake it ‘til you make it” mentality. Any negative news will land more softly if well-telegraphed ahead of time, and any investor would prefer to be in a position to help proactively navigate the business through turbulent times, rather than be told the business has run out of money or disaster has struck with no warning. Investors are well aware of the risks inherent to private investing (especially early stage), and they will appreciate both your candor and the opportunity to help if they can see the cards on the table right beside you.
Investors Hold Keys, Not Just Checks
Investors are door-openers with network introductions, but only if they know which doors could be valuable and appropriate to open. Your investors will often be connected with other investors and communities, and can be helpful in cultivating prospects for future capital raises. Investors may also be able to contribute to business development efforts, connecting you to potential partners or customers. As you look to expand your team, investors can refer strong candidates for open positions, helping save time and energy in the discovery and vetting process. Founders can easily expand their reach by making these simple asks known as needs arise.
Planting Seeds For Valuable Relationships
Even if not in the immediate term, you will be in a better position to secure any future fundraising if existing investors are consistently kept in the loop and feel positive about the relationship. Founders who communicate openly have a greater chance to secure follow-on capital if these relationships are well-nurtured, and to receive better warm introductions toward the same end. Further, when investors receive information on an ongoing basis, you may also find shortened diligence processes and timelines for investment decisions. It will be easier to bring investors up to speed if you’ve been attentive to investor reporting leading up to a round, and the formal opening of the round should not come at a surprise or raise any skeptical eyebrows.
Lastly, good communication habits will improve investors’ impressions of a founder, as investors report more favorable perceptions of founders they view as being honest, transparent, and responsive.
“There seems to be a correlation between quality and frequency of updates and the goodness of the company and founders.”
Aaron Harris, Partner, Y Combinator
In summary, investor communications can significantly enhance the reputations of both founders and the company itself. Even today, a surprisingly few entrepreneurs provide consistent reporting to their investors, so establishing an investor communications strategy is a simple way to stand out as a founder. In the context of opaque private markets where word-of-mouth drives a great deal of investment activity, you will no doubt benefit from establishing yourself as trustworthy and reliable.
