Five whys and three ways to keep your investors happy
If your business has investors – then the importance of investor relations cannot be overstated - in Brazil, Egypt and Bulgaria, companies are mandated by law to have an IR function. That’s not the case in the UK – but it doesn’t mean you should ignore it.
Whatever part of the global electronics industry your business operates in, keeping your investors happy is crucial. Here’s why:
- Follow-on investment as your company grows
Companies tend to need multiple cash injections, especially as they grow and develop. For example, it might be that the business model needs to change to support new technology and therefore would benefit from additional funding rounds.
If somebody had enough faith to invest in your start-up, chances are they will continue to support you as you grow. It is astonishing, however, that if you ask any business angel for their biggest gripe, they’ll tell you that it’s being treated as if they’re an ATM. ‘The thing that companies forget’, says experienced business angel Michael Byrne, ‘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’.
Veteran non-exec director Penny Avis agrees. ‘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’.
- The investment community is a small one
Your stakeholders will be reluctant to fund further rounds if you’ve neglected them. The investment community is – like any society – built on relationships and reputation. If you’ve treated them badly, they’re going to talk about it; good IR is all about honest communication and it’s crucial to keep these ideals in mind to prevent you from damaging your brand and integrity.
- It reflects on your brand
Many of the investors in electronics or associated companies, particularly ‘crowd’ investors, have done so because they identify with the brand/entrepreneur and the ideology; they are not just investing, they are joining a brand that they care about. These kinds of investors are also your biggest cheerleaders. If you don’t keep them informed, they will quickly start to feel like they don’t matter to you and, day by day, your biggest champions will fall out of love with you.
- When in need, they’ll be first in-line to help
A 2018 British Business Bank survey stated that 39% of angels invest in a start-up to contribute their knowledge and experience in that sector. Many successful entrepreneurs, who have exited their own company, like to invest in the same sector – they know it, they understand it, and they can offer invaluable mentoring. So, if your business struggles, don’t hide it from them; chances are, they’ll be able to help.
- It prepares your business for exit
When the time comes to exit, the due diligence conducted by a potential buyer will be thorough on an unprecedented scale. The practice of providing regular updates to investors - via an IR tool - will enable you to be properly prepared. With everything about your business – from the ugly reports to the beautiful sales results - in one place, this process will be quicker and considerably less stressful.
Five reasons to communicate with your investors
These are the five key reasons to keep the communications channels, with your investors, active and open. And there is more you can do if you want to keep them happy and on your side. Here are the top three tips:
- Go digital
The easiest way to look after your investors is to go digital; Envestry for Scale-ups, for example, offers everything you need to keep your investors happy, including a secure data room and a Q&A facility. Even if you decide to go it alone, ensure that you have a dedicated IR section on your website – which can be password protected – having all the relevant information in one place shows how much you value them.
- Be upfront, honest and consistent
Steven M Bragg, author of the Investor Relations 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 faced off accusations of fabricating data, money laundering and most recently misplacing a £70,000 money transfer. Pity their investors, however, as they had to read about it in the press. Had they regularly and scrupulously shared everything with them, they might find themselves facing a less uncertain future. Quite simply, investors need regular updates.
It’s easy to make the Shareholder’s Report – particularly if it’s not as healthy as you’d like – less of a blow if you add a personal touch: if you make t shirts, send them a t shirt. If you’re a tech company, give them a discount or advance notice on new developments – anything to keep them happy to be on your team. Chocolate company Ombar often sends their investors a few bars alongside their Shareholders’ Report – it’s a small gesture that can make a big difference.
- Reach out to your investors
Good IR enables your investors to help when things are tough – the same goes for the good news: communication enables them to identify possible growth opportunities, partnerships or new business angles. Whether it’s angels or crowdfunders - if they’ve given you money, they care and it’s your duty – as part owners of your business – to keep the dialogue ongoing and mutual, so that when you need advice, an opinion, an introduction to new investors or simply to help promote a new product, you just have to ask.
By understanding the five whys, and taking action on the three hows, you will build a great relationship with your investors and keep them on your side and rooting for you through the tough times and the good times.