In the midst of funding and expanding an established business, new founders might overlook the management of stakeholder relations however it is a crucial element of successful. Knowing how to reach out to investors can improve accountability, provide continuous feedback, and help attract more investment.
Communication isn’t always easy to gauge yet its effects could be profound. Take Tesla the founder Elon Musk’s tweet from 2018 regarding going private with the company A tweet of less than 280 characters costs Musk as well as Tesla $20 million in fines, and an investor lawsuit that could be worth billions of dollars in damages.
Startup founders But, most of them take the opposite route rather than oversharing the burden, they share less. This can be costly in it’s own manner. If they don’t communicate regularly efficiently with the investors they have backed, entrepreneurs can be unable to profit from the backers’ expertise and know-how.
Openness, honesty and timely conversations is essential to any good relationship, and this isn’t an exception. Investors don’t usually want more than regular updates and periodic discussions about the future, which is why the leaders don’t need to be experts in communication to be effective in their communication.
The benefits are many The benefits of regular contact with investors can help young startups build networks, grow their businesses and prepare for the demands of growth. We spoke with three Toptal investors relations experts and then distilled their most valuable advice into simple guidelines to assist you in maintaining this relationship.
Make Time to Connect
Why can’t startups communicate better with their investors? The main reason is the time factor, says Brendan Fitzgerald, a serial entrepreneur on Toptal’s free-lance network who has more than 25 years experience. He has worked with numerous investors, and often took on an important role as the primary person for investor relations.
The main reason why the founders don’t prioritise communication is that they believe that their time could be better productively spent on other projects, he adds.
However, maintaining that relationship is an essential task, Fitzgerald says. “You don’t want them to think that you only call when you need more money.” One method to keep investors informed is to send periodic reports. The majority of investors appreciate the ability to provide a short quarterly or monthly report on how the business is performing. It’s not the time founders may think–once you’ve put your first report, he claims the subsequent reports generally should take no more than half an hour to write.
Establish a Rhythm
The most common error entrepreneurs of new businesses make is believing they are getting a benefit from investors as per Toptal specialist Greg Barasia, who has done greater than 20 billion of transactions ranging from seed-stage venture investment to major corporate buyouts. The thought of being a victim makes them worry they’re being irritated by providing investors with frequent updates about their company or asking for advice.
Barasia says the investors aren’t patrons, but are actually business partners. “They want to know what their investments are doing and are eager to help in any way they could. This isn’t about hounding them, but it’s actually getting them into an environment where they can see the state of their investments,” he says.
It is the US Securities and Exchange Commission (SEC) requires that all public companies submit annual reports (Form 10K) along with quarterly report (Form 10-Q) with extensive information about their financials and operations including cash flow, income net sales, growth and obligations. Although startups are not legally required to comply with SEC regulations on disclosures, these guidelines could serve as a general reference point for executives to design their own sharing structure.
Young companies don’t have to adhere to these specific forms however, they can be an ideal starting point. The other advantage is that, should the company goes public getting into the habit of preparing and giving the information to investors will make it easier to present the information to shareholders.
But revealing certain events should not be delayed for the report that follows. Also, SEC rules are a helpful guideline: Public companies must report modifications, such as the appointment of directors or leadership and also the sale or acquisition of assets, as well as other important occasions. If you are planning to launch a significant update to the product you offer, or if you have acquired a competitor, or if you’ve received an acquisition proposal yourself and need guidance, you should talk to your investors, advises Erik Stettler, Chief Economist of Toptal and an ex-venture capitalist.
Reports on investor performance should be concise, consistent as well as realistic and concise.
Keep It Concise
The founders could be enticed by the temptation to give their investors lengthy reports and presentations that contain all the data they can collect. They should not. “Investors in the tech world are not known for their attention span,” Stettler states. “They’re seeking specific facts and information when they receive an update. The first thing to consider is are you in a good financial position? Do you require more capital? What’s your biggest issue ?”
Your report must always contain your most important KPIs, including the growth of active users transactions, volume of transactions, and retention of customers. It’s also helpful to note milestones, such as signing an important deal or achieving the goal of a business.
There are other issues to be answered, also, as per Barasia. “What have you accomplished since last time we spoke? What’s the general state of your business? What are the latest changes? What are you planning to achieve soon? This is the kind of information an investor requires from a business that is still young,” he says. The report shouldn’t be longer than 2 pages.
Making the status reports brief and consistent makes easy for investors evaluate different times, appreciate the pace of change in the startup and react with more accurate understanding. This, in turn, improves collaboration and accountability.
Even if investors do not go through every report, the process of creating the reports mean that the most current information on common questions are typically easily accessible, which could save everyone lots of time. “If your investors call or ask a query, you simply say “Hey! Let me send you a resend of the status from last month. You’ve already done the task,” Fitzgerald says.
Ask for Help If You Need It
The founders are naturally keen to present an image of trust and strength they may fear that seeking advice could hinder their efforts. They might be hesitant to seek advice from their investors since it may suggest that they’re not ready to take charge or keep their commitments. But, investors generally want to see founders succeed and are generally happy to accept calls from founders, Stettler says.
As founders, you must anticipate that your investment partners will contribute to the value of your company,” he says. They shouldn’t make your life more complicated by being too involved However, they are expected to be there for advice as well as for any opportunities they might be able to open for your business. It shouldn’t appear weak to solicit assistance.
Barasia is in agreement. He’s among the first investors in an AI-powered management platform, whose executives send an update every month with important information to their investors. In doing this according to him, they’ve indicated that they’re open to discussion and direction without giving up control. The company is now seeking funds of around $3 million. This founder was active in seeking opinions and advice from investors. In the end, he is in charge of the decision due to the way in which ownership is structured however, we (the investors] are able to speak directly to him and contribute to the decision.
Communicate Bad News Promptly
The founders of startups in the early stages may be hesitant to reveal the fact that they’re in an emergency but it’s unlikely that it will shock investors. In the past, about 20% of startups fail within the first year, while 50 percent fail within the initial five years. The best investors are aware of this, therefore the complete lack of negative news could make investors suspicious.
Like experienced investors who have no fear of failing founders must be prepared for the risk as well, says Barasia. “I think young companies must be proactive in communicating their challenges in advance.
The only time that I’ve really gotten angry at an organization was when they failed to communicate for quite a long period of time,” Stettler says. “When they finally did get in touch the reason was to inform me that they had a month to go and they had to figure it out quick. His anger was not rooted in the crisis , but rather from fact that the company was waiting until the very last minute to inform him of the issue. When it comes to that, he claims it’s typically too late to act.
It’s equally important that investors learn about negative news first from you. It isn’t a good idea for investors to find that your business is not doing well with Facebook, Fitzgerald says. Communication must be in a constant manner, and the consequence to that is that you need to be accessible with a reason. Should your customers have suggestions or questions you should allow them to reach you.
Regular contact with investors improves and safeguards startups at the beginning of their journey in numerous ways.
Paint a Complete Picture
It’s tempting for you to share only the best model of tomorrow in order to convince people to achieve that dream However, communicating with integrity is crucial to maintain confidence with investors.
This goes beyond not lying. “I think entrepreneurs are very optimistic by nature,” Barasia says. But entrepreneurs must be cautious not to let their optimism transform into exaggeration. “I know that you’ve created your business and you have many concepts, but you have to be clear on the facts. Sometimes, the CEO of a start-up will send out an email to all to make it appear that the company has made progress in discussions about a possible new partnership, however it’s really an initial meeting,” he says. False statements like this are not a good sign for him.
Fitzgerald states that you shouldn’t overvalue your skills. “The worst thing you can do when you take money is not being honest about what you can accomplish, setting the bar unrealistically high,” Fitzgerald declares. “If you’d claimed to the investor your business would achieve Point C in 10 months and you weren’t even close to Point C, you’ve lost credibility. Investors place their money with the people they can be confident in. Every communication you send out should aim to strengthen that confidence .”
Set realistic goals and communicating regularly and in a professional manner can help build a community of investors who will invest in future projects, Fitzgerald notes. Fitzgerald has built a circle that has backed several of his ventures, some of which have failed. However, because of the favorable connection they shared to him, they were able investing in future initiatives. There were some who lost money with the company, but invested in a new venture that proved to be prosperous. Entrepreneurs that want to be successful, having a community of investors who are confident in your business is crucial as he states. Stettler agrees. I have been involved in more than one time with the same founder , as failure is part of this process.
Communicate for Success
If people interact with one another, if communication is clear and potential outcomes are defined and defined, they are able to face the most difficult scenario with little conflict, and could create the conditions for success in the future. The best method to handle the bad news is to deal with it promptly and presenting the most important lessons you’ll need to apply the next time around,” Stettler says.
The process of communicating with investors does not have to be complicated, but it has to be deliberate. A good communication strategy can foster the kind of relationship that begins with the first pitch deck and extends after your investors’ exit.