Note: I co-founded my first company when I was 30 with a private placement that eventually raised over five-million dollars. Here is some advice I wish I had 25 years ago:
It is hard for a young founder to understand the mindset of an investor in a private placement. Especially if that founder did not grow up in a high-net-worth family. For me, these people who could write a $250,000 check to fund my idea were a bit of a mystery.
I never really considered the value of communication with my investors….I was working too hard to try to make the idea successful.
Now, at 55, I have another privately funded company. Yesterday, we held our monthly call with investors. I recorded it on Zoom and sent out an update to all of our investors, including a transcript of the call.
I started holding these calls about a year ago…probably too long into the growth of our company. I wish I had started them on day one. They get overwhelmingly positive feedback, even though the calls themselves are not particularly action-packed.
Here’s a few reasons this kind of robust communication can add value to your startup:
Investors Need Confidence Their Money is Working. As an investor myself, one of my biggest frustrations is deploying money into something and not knowing how it’s going. I hear this from investors in other placements all the time. “I can’t get those guys on the phone.” “Getting information is like pulling teeth.” “The whole thing is a black hole.”
We have over 60 investors in Premium Property Trust. On any given monthly call, we will usually have 10-15 people participate…and the group changes each time.
I purposefully keep the calls short and mostly informal. If you have a monthly call with a complicated agenda, you may end up dedicating too much preparation time, which could distract you from other important tasks.
The main purpose is to share with the investors what we are doing. I may highly a key financial metric, a new strategic hire, emerging opportunities, or challenges that we may be having.
The value to the investors is that they hear my rationale for decision-making as the CEO. This helps them maintain confidence that their money is being managed responsibly. No executive can *always* make the right decision, but communicating the influences for decisions – even if they end up being wrong – provides the investors with the confidence that you take your fiduciary responsibility seriously.
Regular Communication Makes Difficult Messages Easier to Deliver. If you go silent as an executive and leave your investors in the dark, when you have a serious issue emerge, you will find much less empathy from those who support you financially. The concept that “No News is Good News” does not apply to investor relations.
If you emerge from a silent period with a desperate plea for a capital call, you will find your investors extremely frustrated to be put in that position. So many times, I have provided advice to friends about the danger of “throwing good money after bad.” The advice I usually give is along the lines of: “If they weren’t transparent about the decisions that led to the problem, they probably aren’t being transparent about the likelihood of additional investment solving it.”
Engagement With Investors Allows You To Leverage Their Expertise and Networks. For years I gotten a smile from people when I explain how a professional network contact was able to help in a situation, saying wryly, “It’s not who you know. It’s who I know.” Well, especially when you are a young founder, your investors probably know many more influential people than you.
If you are willing to be transparent about both your successes and failures, you will often find your investors might have a connection that can provide immediate value to your business. Of course, my saying is derived from the actual phrase, “It’s not who you know. It’s what you know.”
Here, too, you may find expertise in your community of investors that proves invaluable.
As a young CEO I felt, “These investors have said they invested in me. The last thing they want to hear from me is uncertainty.” As I’ve grown older and more confident, I’ve learned that, yes, they have invested in me. But they know I don’t have all the answers about every domain involved in running a business (e.g. financing, human capital, legal, strategy, time management, insurance, technology, etc.)
Given a chance, you will find many of your investors have complimentary experience to your own and can provide valuable insight as a startup naturally evolves its business model.
Startups are inherently risky, and the path to success is rarely straightforward.
Don’t let your own insecurities stand in the way of communicating openly with your investors. They did invest in your leadership, and an important aspect of effective leadership relies on consistent handling of business challenges. Providing your investors insight into your thought processes strengthens your reputation with them and helps secure continued support.
Further, maintaining a regular communication cadence with investors increases your personal accountability. Knowing that you need to provide consistent updates encourages you to stay focused on your goals and adhere to your timelines. This discipline can improve your overall performance and drive better results for your startup.
To maximize the value of your investor communication, consider the following best practices:
1. Regular Updates: Schedule regular updates, such as monthly or quarterly reports, to keep investors informed about your progress.
2. Transparency: Be honest about both your successes and challenges. Transparency fosters trust and credibility.
3. Be Concise and Clear: Investors are busy; provide clear, concise, and well-organized information to respect their time and ensure they understand your message.
For privately placed startup companies, communicating with investors is a strategic imperative that goes beyond merely updating them on financial performance. It’s about building a foundation of trust, aligning expectations, leveraging resources, and fostering a collaborative relationship that can significantly impact your startup’s success. By prioritizing transparent and effective communication, you not only enhance your current investor relationships but also pave the way for future growth and opportunities.
One final thought: All of this can only be accomplished if you are ethically leading your company. As a young person, I probably focused too much on what things I needed to do to become successful…even to appear successful. I did not give enough effort towards how I would make those who invested in me find personal success (that is, a meaningful return on their investment and ownership in a valuable and ethically-managed company). If your primary focus is selfish, you should not be taking capital from others, you should be relying on yourself. Your job as a founder is to put your investors’ interest first. If you do that, your personal success will follow.
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