Make sure you cover these points for effective investor communication - Founder's weekly

Startup founders may overlook stakeholder management when juggling the demands of raising capital and expanding a new company, but it's an essential element of success. Understanding the best times to communicate with investors can improve accountability, encourage constant feedback, and draw in more money.

Despite being hard to quantify, communication can have a big impact. Elon Musk, the founder of Tesla, tweeted in 2018 about taking the business private. Musk and Tesla were fined $20 million each for a message with fewer than 280 characters, and a shareholder lawsuit with potentially billion-dollar damages was filed against them.?

Startups should treat investors like business partners rather than as patrons. The relationship is greatly improved by frequent updates and the occasional request for advice.

Young startup founders, however, frequently adopt the polar opposite strategy: they undershare rather than overshare. That could be a costly mistake in and of itself.?

Founders risk missing out on opportunities to benefit from the experience and knowledge of their backers by failing to communicate with their investors on a regular and effective basis.        

Every healthy relationship, including this one, should be based on open communication, honesty, and timely discussion. Leaders don't need to be skilled communicators to do it well; investors typically don't expect anything more complex than routine updates coupled with sporadic discussions about plans.

There are also a lot of advantages: Young startups benefit from regular contact with investors because it helps them build their networks, grow their companies, and get ready for growth-related challenges. We spoke with our venture capitalists and investor relations consultants, and we distilled their best recommendations into clear rules that can assist you in creating and maintaining this connection.

Keep a schedule to nurture and cultivate connections?

Why don't young companies use better investor engagement strategies? Time is the most important factor, according to one expert in our network with more than 25 years of experience who is also a serial entrepreneur. This person has worked with hundreds of investors, frequently serving as the point of contact for investor relations.

His experience asserts that the main reason founders don't prioritise communication is that they think their time would be better spent on more urgent tasks.

Entrepreneurs' core emphasis should be on the importance of maintaining investor relationships.?        

They shouldn't assume that you only call when you need more money. Periodic reports are a useful tool for keeping backers informed. Most investors are happy with a brief report on the company's performance every month or every three months. Moreover, it doesn't take as much time as some founders might anticipate; once the first report has been prepared, the others usually don't take longer than 30 minutes, according to our expert.

Establish flow

The most common mistake that founders of young businesses make is thinking that investors are doing them a favour. That thought makes them afraid that they are being annoyed by sending investors frequent information about the company or asking for guidance.

• These investors are business partners rather than patrons, though. They are eager to provide any assistance they can and want to know how their investment is faring. You're not bugging them; instead, you're putting them in a position where they can monitor what happens to their money.?

• Public companies must submit annual reports (Form 10-K) and quarterly reports (Form 10-Q) containing comprehensive financial and operational data, including income, cash flow, net sales, growth, and obligations, to the US Securities and Exchange Commission (SEC).?

• Even though startups might not be required to adhere to SEC disclosure regulations, these guidelines can be a useful general framework for executives to create their information-sharing framework.

Although these forms are a useful place to start, new businesses are not required to adhere to them exactly. A secondary advantage is that gathering and presenting this information to investors will make the transition to presenting it to stockholders easier if the company ever goes public.

However, some events should not wait until the following report is disclosed. Once more, SEC regulations are a helpful guide: Public companies are required to disclose significant events, such as the appointment of new directors or leadership, the purchase or sale of assets, and other changes.?

Sincerely, you should talk to your investors before launching a significant new version of your product, buying out a competitor, or accepting an offer to be acquired yourself.?        

Here’s what startups can and should convey

Short, Crisp and Practical?

Founders might be tempted to send their investors in-depth presentations and reports filled with all the data they can find.?

• No, they shouldn't. Generally, tech investors are not known for having long attention spans. They look for particular facts and pieces of information when they get an update.?

• The usual questions may follow: Is your financial situation in order first? Do you require additional funding? Which of these is the most pressing?

• Your report should ideally always include your key performance indicators (KPIs), such as growth, active user counts, transaction volumes, and client retention. Include milestones like closing a significant deal or accomplishing a professional objective.

• There are still other problems that demand attention.?

• What have you been up to since our last conversation? What is the company's current state generally? What has changed recently? What future endeavours do you have in mind? A young company must provide an investor with that information. A two-page maximum is recommended for this report.

• It will be simpler for investors to compare various periods, comprehend the startup's evolution, and provide more insightful responses if the status reports are brief and consistent. As a result, accountability and cooperation are strengthened.

Even if investors don't read every report, the disciplined approach taken in creating the reports ensures that current responses to frequently asked questions are readily available, which can save everyone a ton of time. You’ll set a grounded tone in this manner.?

Be transparent and guidance oriented

Usually, founders would want to present themselves as strong and trustworthy, and they might believe that doing so would be compromised by soliciting advice. Because doing so might suggest they aren't ready to lead or keep their promises, they might be reluctant to ask for assistance from their investors. However, investors are typically happy to take those calls because they want to see founders succeed.

1. As a founder, you should anticipate your investors adding value. While they shouldn't overly interfere with your life, they should be accessible for advice and any doors they can open for the company. Asking for assistance does not make you appear weak.

1. One of our first investor networks uses an AI-powered event management platform, whose leaders send monthly updates with crucial information to all of their investors. They have demonstrated by doing so that they are open to discussion and guidance without sacrificing control. The founder has approached the investors with great initiative to get their thoughts and perspectives. Due to the ownership structure, he ultimately has the final say, but our investors can speak with him and provide their opinion. This is how transparency emits excellence.?

Be thorough on good and bad news

Early-stage startup founders may feel anxious about revealing that they are experiencing a crisis, but investors won't be shocked. In the past, 20% to 50% of newly founded businesses have failed within their first year, according to statistics.?

Good investors are aware of this, so the absence of any negative news may raise questions. Founders must be ready for failure, just as experienced investors are not unfamiliar with it.

It's crucial that founders deliver bad news to investors first. It's not a good idea to let investors know that the business is struggling via social media.?        

A founder must maintain constant communication, and the logical extension of that is that they must always be reachable, within reason. As a founder, your investors must be able to call you with any comments, inquiries, or worries.

Tell the whole story

It may be tempting to only present the most optimistic vision of the future to persuade others to support your efforts; transparent communication is crucial for preserving investor confidence.

This implies more than just being truthful. Entrepreneurs are usually optimistic by nature, but founders must be careful not to let optimism turn into exaggeration. I get that you started a business and have all these ideas, but you need to be very clear about the facts.?

Sometimes a startup CEO will email everyone to give the impression that negotiations for a new partnership have advanced, but in reality, he or she was just having a preliminary discussion. Overstatements like that are a dealbreaker.

The worst thing you can do when accepting money is to set the bar too high and not be honest about your capabilities.?        

If you promised an investor that your business could arrive at Point X in ten months but failed to do so, you've lost credibility. Investors entrust others with their money. Every interaction you have with someone should aim to strengthen that trust.

Building a network of investors for future projects can be accomplished by establishing reasonable goals and communicating frequently and honestly. Getting to the point is not a success; getting there with full credibility is the key.?

“The” rule of every healthy relationship: Clear Communication

• The level of operations is not an issue when it comes to communication. At every point of contact, your organisation should practise clear and concise communication.?

• As they say, "No relationship can stand without communication," and that applies here too.?

• People can face even the worst-case scenario with minimal conflict when they interact with one another, communicate clearly, and have a clear understanding of the potential outcomes. Only a robust communicative framework can pave the way for future success.?

• The best way to deal with bad news is to do it promptly while outlining the key lessons that you are going to apply next time.

Investor communication need not be challenging, but it must be deliberate. The kind of partnership that starts with your first pitch deck and continues well after your investors have left is one that is nurtured by effective communication.

Thanks for your read to Fouders' weekly, please feel free to share with other founders in a message or on your wall.

With love and joy

abhishek