If you want to launch a company, chances are you’ll need the support of one or several investors at some point in your business’ lifecycle. You’ll spend months finding and closing investment capital, but the work doesn’t stop when everyone signs on the dotted line.
In order for your venture to succeed, you’ll need to carefully manage relationships with your stakeholders as your business grows, hits roadblocks, achieves milestones, and climbs toward a valuation. The ride will not always be smooth, and it’s up to founders to navigate through the good times as well as the bad.
We spoke with two founders in a recent webinar and asked them to share advice with fellow entrepreneurs on how to work with investors and build a mutually-beneficial partnership. Andy Wilson, CEO of Logikcull, and Jack Newton, CEO of Clio, have collectively raised over $40 million in capital for their businesses. Here are their tips on how to manage investor relations.
One of your primary responsibilities as an entrepreneur is to choose the right investor to help you grow your business. When you bring an investor onto your cap table, you’re beginning a relationship that could last over a decade, and you need to take that into consideration when making your decision. Wilson says that in order to find the best fit for your company, founders should do the following:
- When you’re evaluating funds to approach for growth capital, start by considering your end goal. Determine how big you want your company to be and look for funds who are looking to fill that slot in their portfolio. Don’t go after brand-name investors if they won’t be the right match for you in the long run.
- Be realistic when you present your company to investors. Don’t make promises that you can’t back up with data. Absolute transparency will help set expectations early on and attract the right kind of investor to your business.
- Don’t discount the intangibles. You’re going to spend a lot of time with your investors and it will be a much more pleasant experience if you get along with them on a personal level. You don’t have to be best friends, but you should be able to navigate through a business deal without too much friction. Pay attention when entering negotiations and make sure your prospective investor is someone you want to do business with.
Communicate openly and often
Once you’ve entered into a partnership with an investor, you need to be proactive with your communication. Don’t wait for them to come to you looking for an update. Clio’s Jack Newton suggests:
- Use an online communication tool, such as Basecamp, to share information. It will ensure your investors can find information easily as well as keep communication centralized. Your shareholder updates often contain sensitive information, and it’s important that you keep it private.
- Share company updates on a routine basis. Develop a cadence that works for you and stick to it. It shows investors that you respect the risk they’ve taken and are actively working toward a successful outcome.
- Always be transparent. Investors know that every business has highs and lows, and they expect to see your company encounter a few obstacles. If you’re facing a roadblock, be open about it. When you present the problem, be sure to communicate the solution your team is working toward and make yourself available follow-up questions.
- Ask for help if you need it. Your investors are one of your greatest resources. They often have valuable insights from previous experiences that can help your company thrive. Use them as a sounding board for ideas and don’t be afraid to ask for their expertise.
Deliver on your promises
The best way to build rapport with your investors is to follow through with the goals you’ve set. Of course you won’t hit every milestone, but you should demonstrate over time that you can consistently execute on your growth strategy. Be conservative in your estimations and projections. It’s better to under-promise and over-deliver, rather than make lofty predictions that aren’t backed by data and realistically achievable.
If you choose your investors wisely, they can be one of your greatest assets as you try to scale your business. Entrepreneurship isn’t an easy path and the insight, connections, and capital your investors bring to the table is invaluable. By working to align investor interest with company goals using the tips above, founders can maintain shareholder support while maximizing value. Be sure to watch the entire webinar here for more tips from our founders. If you have additional insight on how to best manage the founder/investor relationship, we’d love to hear it! Leave a comment below.