Entrepreneurs usually need investors to stump up the funding to fuel their dreams. The mistake many make is putting a huge effort into persuading investors to back them, only to neglect them once they have invested.
This approach is damaging, especially when you need more investment for your next phase of growth, so we asked, Scott Haughton, COO at Envestors to explain why you need to communicate with your investors and how to do this.
It’s strange to think that even though publicly quoted businesses have been seeking funding through stock exchanges since the 17th Century, it was not until the 1950s that investor relations (IR) was even identified as a concept.
In 2019, we are far more aware of just how crucial good IR is – indeed, in Brazil, Egypt and Bulgaria, businesses are directed by law to have an IR strategy.
5 Reasons Why Good Investor Relations is Critical to Your Success
1. Follow-on investment
Businesses tend to need numerous cash injections through funding rounds before they reach maturity. If somebody believed in your start-up enough to put their money in, the odds are they will remain supportive you as you expand.
It is shocking, however, that if you ask any experienced investor for their biggest grievance, they’ll tell you that it’s being used as if they’re an ATM.
Experienced non-exec director Penny Avis says, ‘I am much more likely to invest in further rounds if I can see that management really understand how to keep their shareholders up to date. Short, timely, no flannel reporting is what I am looking for’.
Veteran angel Michael Byrne agrees, ‘The thing that businesses forget is that if we only ever see them with the begging bowl out, the chances of us participating in follow-on rounds decreases significantly. Likewise, the chances of us investing in a follow-on company (if the first company fails) decreases to zero if there has been no communication’.
2. Your reputation in a small investment world
If you’ve abandoned your first shareholders and they’re now understandably reticent to cough up for your next round, you’ll need fresh investors. However, the investment community is – as with any society – built on relationships and your good name.
If you’ve disrespected people, it’ll be discussed within that community; good IR is all about maintaining authentic communications and it’s vital to keep these principles in mind to stop you from irreparably damaging your brand and veracity.
3. Keeping your brand cheerleaders onside
Many investors, particularly ‘crowd’ investors, contribute to a company’s fundraise because they feel a connection to the brand and its philosophy; they are not just investing, they are joining a name that matters to them.
These types of investors are also your chief cheerleaders. If you don’t keep them up-to-date regularly and honestly, your biggest champions may well fall out of love with you.
4. If you need help, they’ll be first in line
In 2018, the British Business Bank conducted a survey and reported that 39% of angels invest in a new business to share their expertise of that particular sector.
Tony Goodwin, CEO of recruitment giant Antal International, says ‘I tend to only invest in recruitment start-ups, as it’s my sector and I really enjoy the mentoring side.
Business is about life, not just money – it’s almost like a marriage’. If your business struggles, don’t hide it from them; chances are, they’ll be able to help.
5. You’ll be perfectly prepared for exit
Every investor is looking for the huge pay-out though, when the time arises for exit, the due diligence conducted by a prospective buyer will be exhaustive on an unparalleled scale.
However, the discipline of providing consistent updates and news to your shareholders – via an IR tool or portal – will have laid all the groundwork in place. With everything about your company – from the unpleasant reports to the stunning sales results- in one place, this procedure will be faster and significantly less traumatic.
3 Ways to Keep Your Investors Warm
1. Go digital
The most efficient way to nurture your investors is to go digital; Envestry for Scale-ups, for example, provides everything that is essential to keep your investors content, including a secure data room and a Q&A facility.
Even if you choose to do it by yourself, make sure that you have a specific IR portal on your website – which can be password protected, so no sensitive data issues – having all the applicable material in one place proves how much you value them.
2. Be frank, truthful and dependable
Steven M Bragg, author of the IR Guidebook, says, ‘The worst way to release bad news is to bury it in the footnotes, in the hope that no one will see it. A diligent investor always reads them and won’t appreciate having to dig deep to uncover potentially critical information.’
Fintech app Revolut, for example, has tackled allegations of engineering dodgy data, money laundering and most recently losing a customer £70,000. Sympathise with their investors, however, as they had to read about it in the media. Had they repeatedly and meticulously shared everything with them, they might have been able to avert all this negative publicity.
Quite simply, investors need steady news updates. It’s simple to make the Shareholder’s Report – especially if it’s not as buoyant as you’d like it to be – less of a depressing read by adding a special, personalised touch.
For example, if you make hats, send them a hat. If you’re in the technology sector, give them a price mark-down or first notice on any new product or device – anything to keep them pleased to be on your side.
3. Just talk to your investors
Good IR allows your investors to help when things are rough – the same applies when it’s all running smoothly: regular dialogue allows them to identify possible opportunities, partnerships or original business approaches.
It doesn’t matter whether you’ve been funded by angels or crowdfunders – if they’ve backed you, they care and it’s your responsibility to keep the discourse on-going and shared, so that when you need guidance, a different point of view, an introduction to new investors or merely to help endorse or publicise a new product… just ask.
About the author
This guide has been written exclusively for ByteStart by Scott Haughton, COO of Envestors, a fintech company that connects investors and scale-up companies. With its fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year.
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