Startup founders may overlook stakeholder management when faced with the constraints of funding and building a new business, yet it is a vital component of success. Understanding how and when to interact with investors can improve accountability, encourage ongoing feedback, and attract new investments.
Communication is difficult to quantify, yet its impact can be considerable. Consider Tesla CEO Elon Musk’s tweet on taking the firm private in 2018: A statement with fewer than 280 characters cost Musk and Tesla $20 million in fines, as well as a shareholder lawsuit that might result in billions of dollars in damages.
Young startup founders, on the other hand, frequently follow the opposite approach: instead of oversharing, they under share. In its own right, this can be an expensive miscalculation. Founders may miss out on opportunities to profit from their investors’ experience and skills if they do not engage with them on a regular and effective basis.
Why don’t fledgling companies connect with their investors more effectively?
One reason is lack of time. The primary reason founders do not prioritize communication is that they believe their time would be better spent on other essential activities. However, maintaining that bond is vital. You don’t want people to believe you just call when you need money. Periodic reports are an excellent approach to keep backers informed and, once important paperwork, such as your 409a Valuation comes through, feel free to share this with them too. Most investors are satisfied with a brief monthly or quarterly performance report on how the company is performing. And it doesn’t take as long as entrepreneurs may think – once you’ve completed the first report, he says, the future ones shouldn’t take more than half an hour to write.
Every good relationship requires honesty, openness, and timely dialogue, and this one is no exception. Investors aren’t asking for anything more elaborate than weekly updates and periodic conversations about future plans, so executives don’t need to be professional communicators to execute it well.
And the advantages are numerous: Contact with investors on a regular basis assists fledgling entrepreneurs in expanding their networks, strengthening their businesses, and preparing for the obstacles of growth.
Why don’t fledgling companies connect with their investors more effectively? One reason is lack of time. The primary reason founders do not prioritize communication is that they believe their time would be better spent on other essential activities. However, maintaining that bond is vital. You don’t want people to believe you just call when you need money. Periodic reports are an excellent approach to keeping backers informed. Most investors are satisfied with a brief monthly or quarterly performance report on how the company is performing. And it doesn’t take as long as entrepreneurs may think – once you’ve completed the first report, he says, the future ones shouldn’t take more than half an hour to write.
Create a Rhythm
The most typical error that young business owners make is believing that investors are doing them a favor. That thinking makes them worry that they are bothering investors by sending them frequent information about the company or asking for advice.
These investors, however, are not patrons, but rather business partners. They want to know how their investment is going, and many are eager to assist in any way they can. It’s not that you’re nagging them; rather, you’re placing them in a situation where they can see what’s going on with their money.
The Securities and Exchange Commission (SEC) of the United States mandates public firms to publish annual reports (Form 10-K) and quarterly reports (Form 10-Q) giving specific financial and operating information such as income, cash flow, net sales, growth, and obligations. Although startups are not obligated to follow SEC disclosure criteria, these principles can be used as a basic blueprint for leaders to design their own information-sharing strategy.
Young firms do not have to follow these forms exactly, but they are a good place to start. Another advantage is that if the company ever goes public, being in the habit of gathering and providing this information to investors will make the transition to presenting it to stockholders easier.
However, certain incidents should not be kept secret until the next report. Again, SEC rules are a good starting point: Public corporations are required to disclose significant events such as the appointment of new directors or leadership, as well as the acquisition or disposition of assets. If you are launching a big new version of your product, acquiring a competitor, or receiving an acquisition offer and need guidance, you should ask your investors.
This is a text graphic with the headline: When Should Startups Tell Investors? Under the title, there are two columns. The first one is called Quarterly. The following topics are on the list: KPIs and financial health, recent accomplishments, roadblocks or concerns, and plans for future reporting. Immediately is the title of the second column. When important changes occur, when you require counsel, when you require assistance, and when you are in financial difficulty are all on the list.
Investor reports should be consistent, succinct, and reasonable.
Keep It Brief
Founders may be tempted to provide their investors with complex presentations and reports with as much information as possible. They ought not to. “Technology investors are not recognized for their attention span,” Stettler explains. “When they get an update, they’re looking for specific facts and pieces of information.” First and foremost, are you in good financial standing? Do you require additional funding? “What is your most pressing issue?”
The major KPIs, such as growth, active user numbers, transaction volumes, and customer satisfaction, should always be included in the report.
It’s also a good idea to mention milestones such as closing a significant sale or meeting a business goal.
Other issues, according to Barasia, should be addressed as well. “What have you done since our last conversation?” What is the overall state of the company? What are the new additions? What are your plans for the near future? “That is the information an investor requires from a startup company,” he explains. This report should not exceed two pages.
Short and consistent status reports will make it easy for investors to compare different periods, comprehend the startup’s evolution, and respond with superior insights. As a result, responsibility and teamwork are strengthened.
Even if investors do not read every report, the discipline of creating the reports ensures that up-to-date answers to popular questions are frequently available, saving everyone a lot of time.
If You Require Assistance, Please Ask For It
Founders obviously desire to create an image of power and dependability and may believe that seeking guidance will jeopardize that goal. They may be scared to ask for assistance from their investors because doing so may signal that they are unable to lead or deliver their commitments. However, most investors want to see founders thrive and are willing to take those calls.
As an entrepreneur, you should anticipate that your investors will provide value.. They shouldn’t be making your life more difficult by getting too involved, but they should be available for counsel and for whatever doors they can open for the company. It does not make you look weak to ask for help.
Promptly communicate bad news
Early-stage business owners may be worried about announcing that they are in a crisis, but it is unlikely to surprise investors. Historically, approximately 20% of new businesses fail during the first year, and 50% fail within the first five years. Because good investors are aware of this, the complete lack of adverse news may create concerns.
Just as seasoned investors are no strangers to failure, creators must be prepared for it.
It’s also vital that you deliver negative news to your investors first.
A founder would not want investors to find out about the company’s terrible social media performance. One must maintain ongoing communication, and as a result, one must be available at all times, within reason. If the investors have any comments, questions, or concerns, they must be able to reach the founder.
Complete The Picture
It’s tempting to present just the best vision of the future in order to persuade people to help you make that future a reality, but speaking with honesty is critical to preserving investor trust.
This entails more than simply not lying.
Entrepreneurs are naturally positive people. However, founders must exercise caution should their optimism become exaggerated. Sometimes a startup CEO would send an email to everyone, giving the impression that the firm has advanced in talks about a new relationship when, in fact, it was merely a preliminary conversation. Such exaggerations are deal breakers.
A founder should not exaggerate her abilities. The worst thing a funder can do when accepting money is to be dishonest about what you can accomplish and to establish overly high expectations. If a founder tells an investor that the company could achieve Point C in 10 months but does not even come close, the founder’s credibility suffers.
Investors put their money in people they can trust. All the communication should try to reinforce that trust.
Setting realistic goals and communicating on a regular and honest basis will help you build a network of investors for future initiatives.
When individuals interact with one another, when communication is clear and potential outcomes are well-defined, they can face even the worst-case scenario with minimum conflict and potentially set the basis for future success. The greatest method to deal with [bad news] is to do so promptly, detailing the essential lessons that [you] will apply the next time.
Communication with investors does not have to be tough, but it must be deliberate. Good communication fosters the kind of connection that starts with your first pitch deck and lasts long after your investors have left.
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