In the U.S. there are over 50,000 venture-backed companies who all answer to their stakeholders. When money is invested, a number of terms are accepted and depending on the dollar amount, this can mean regular updates are required. Maintaining an open line of communication with business partners is a good policy in all professional matters but is especially important when dealing with investors.
By implementing a solid foundation of communication that provides relevant information and creates avenues for feedback at the onset, it then becomes easier to scale as more investors are added. Keeping these existing investors engaged and informed is what often brings them back to the table in later rounds, this is only accomplished through consistent communications.
Investors are specifically interested ingrowth metrics that indicate the health of the companies. Honesty, transparency help build trust that yield results long-term and drive a successful partnership. With the right resources and a proper communications plan can make investor relations simple.
Not All Investors are the Same. Understand and Meet Their Needs
When it comes to funding rounds, a company can start with a handful of angel investors and as subsequent rounds are raised, more VC firms are added to that roster. Understanding each investor can provide guidelines for the frequency and manner in which you communicate. Some investors might require certain reporting metrics while others might want to have a high level overview.
This can be in the form of a monthly, quarterly, or bi-yearly email update email. The frequency of the reporting can range depending on a company’s stage, regardless there should always be a consistent and regular stream of communication happening at all points. Important key performance indicators (KPI’s) normally come from revenue, burn rate, employee size, and/or growth projections. While details can evolve and change over time as a company grows, establishing a solid framework, and regular cadence for updates can prevent future headaches.
Creating Open Lines of Communication
Investors are not just cash cows, they have a wealth of experience, knowledge, and connections that can be instrumental to your startup. While investors manage a number of portfolio companies, as a founder you want to deepen your relationship with investors, stand out amongst other companies so your startup is top of mind when opportunities arise. Not all investors are hands-on, some write a check and then checkout but if you can keep them engaged, you’re more likely to benefit from their network and expertise.
While you can’t expect that everyone will be as committed and active with your company, having a strong communication strategy will keep these relationships from deteriorating and can drive activity that benefits the organization. Ultimately, the tone of the relationship is guided by what you do as a founder. Understanding that investors are a resource not just a blank check who can only help when they are involved and when those needs are clearly communicated from the beginning.
There’s Nothing Better Than Honesty and Transparency
With 9 out of 10 startups failing, it’s important to recognize that building a company from the ground up is a challenge and can take unexpected turns. Difficult conversations are par for the course. Be comfortable having them because it’s guaranteed that there will be some challenges you didn’t see coming. Take the pandemic of 2020 that impacted many industries, shuttering in-person services, that was an unforeseen economic shakeup that no one could have predicted. While having a conversation about stagnant or declining growth can be challenging, being transparent is crucial to your investor relationships. Hiding, omitting, or deceiving never leads anywhere good. This damages relationships long beyond the life of one company.
When your company hits its first roadblock or struggle, having an established method of communication with your VCs provides a roadmap on how to best deliver news in a clear, informative manner that provides next steps to investors is critical.
When There is Crisis, Quick and Precise Communications are Key
If there is open and constant communication, investors should not be surprised by any given situation that occurs. Informing funders is crucial if something happens that puts the financial health of the company at risk. Providing them a full scope of the situation, how it impacts the company, and your planned solutions can help strengthen investor resolve in you and your company instead of shaking it.
Informing financial bakers of issues within a reasonable timeline (which is likely to be within the 24 – 48 hours range) would be ideal. The chances of information being leaked increases with time and the more brand recognition a company has. Once news of a crisis has leaked, it can be a struggle to control or contain the news. Investors should never learn of a problem via any other channel than the company and its founders. If this occurs, trust can be totally broken. Communication is critical under calm circumstances but even more important when in a crisis.
Create an Investor Relation Plan
At the end of the day, most founders have good intentions when it comes to investor communications. But it’s easy to get distracted by everyday tasks of running a startup. That’s why having an investor relation (IR) plan can help you effectively communicate accurate information to your financial backers and help you navigate the tricky waters of starting a company. This is another area that a seasoned PR team can help you create and execute regularly.
Regardless of what stage the startup is in regular corporate updates, being able to effectively communicate is key to successfully securing funding. Without proper and intentional planning, funders can feel like their investments were wasted. Founders can also miss out on valuable insights. Executing a realistic IR plan can help manage rapport and encourage investors to fund future rounds, ensuring the health and strength of your business.