Investor communications — do they really matter?
Over the last few weeks, we have had the opportunity to speak with tens of startup founders and investors as part of our Private Beta launch for Truealpha.
Through these discussions and hours of research, we have collected great insights and practical tips from both sides of the table on many aspects of building successful founder-investor relationships.
In this article, we share why it is crucial for founders to maintain regular communication with their investors or they risk misalignment and investors becoming an obstacle to the growth of the company.
A distinct takeaway from many of our discussions has been the growing emphasis on the quality and cadence of communication between startups and their investors. When the business activity nearly froze following a worldwide lockdown during the peak of the pandemic, this emerged as a pressing issue.
Startups were forced to collect and synthesise their company’s financial and performance highlights in a compressed timeframe and share it with their investors. Investors required this information to quickly determine how best to engage and support their portfolio. For many, this exposed the risks and downside of not having maintained a regular cadence of communication or not having the latest company KPIs and startup metrics readily available.
Startups are a constantly evolving entity, requiring founders to be spinning many plates at any one time. In this setting, it is easy to consider investor communications as an administrative burden or to neglect them entirely, when not mandated by the investors. However, as our discussions revealed, this outlook is to the startup founders’ great disadvantage.
Here are the top 4 reasons, that we heard repeatedly, for founders to actually do regular investor comms — even when not mandated:
Securing capital from an investor is only the start of a business relationship. Many investors noted that a founder’s ability to keep investors engaged and excited, post-investment, is one of the most underrated skills in the industry.
Accelerator programs such as Techstars that have invested in over 2000 companies, and typically leverage weekly company updates as one of the powerful tools to drive engagement.
Engagement is even more critical with early-stage investors who commit capital before the business offering is fully developed. At this stage, they are interested to be part of the journey and to lend their experience. Through regular communication, you can tap into their expertise, leverage their network, and enable a genuine connection between them and your business. A regular cadence of investor communication is the perfect opportunity to open dialogue and build effective engagement.
2. Staying top of mind
Through regular communication, your startup remains top of the mind for your investors. This means that they are so much more likely to mention your startup to their network.
Leveraging investors as ambassadors is a smart way to grow your social capital — even when you are at your desk building your product, your marketing plan, or your financial forecast.
Several investors expressed their strong preference to be supplied with all the information and ammunition they can use to spread the word about the founder or the business they have invested in, even when they don’t mandate regular updates. When investors don’t hear from an investee company, it erodes their interest and they tend to assume that the company is not doing well.
Aaron Haris, a partner at Y Combinator, the startup accelerator behind companies such as Airbnb, DoorDash, Coinbase, Instacart, Dropbox, and Reddit, said: "There seems to be a correlation between quality and frequency of updates and the goodness of the company and founders."
In the startup world, no news is not good news.
3. Follow-on funding and support
Keeping your current set of investors informed and engaged is critical to getting their support in the future.
Over the past several months, when several companies have had to raise bridge rounds or tackle disruption caused by the global pandemic, strong backing of their current investor base has been a lifeline and an asset. However, if your investors hear from you only when you are running out of capital or have a crisis at hand, they are less likely to show up for you.
In most cases, investors (as shareholders) have to approve all future round of funding. If lack of communication leads to misalignment, investors can become an obstacle in closing future rounds.
While dealing with the incident of losing $500k, Seth Bannon, founder of Amicus, a startup that helped non-profits raise funds said: "One thing that I let slide was investor updates. There were a couple of investors I talked to regularly, but by and large my communiqués were scarce, and normally were sent when I needed something. This meant that when the crisis struck, it took much longer for investors to be able to help than it needed to."
Lack of support from early investors sends a bad signal to the new set of investors. In our discussions, several investors shared that one of the frequently asked questions as part of their vetting process is whether the startup’s current investors will support them with the new raise. If you don’t have that support (without a compelling explanation) then that’s a red flag for the new investors, which can jeopardise the next raise.
4. Point of reflection
Getting into the habit of writing a monthly or a quarterly update serves as a fantastic force function for you and becomes an exercise in accountability —towards your investors but also towards yourself and your team. It’s a great chance to reflect on the trajectory of your company, its goals and progress from month to month.
Investor communication is one of the best ways to continually ensure that you are chasing your north star.
When you are in the trenches, it is easy to lose sight of the big picture. However, when you create a milepost that forces you to sit down and craft your investor comms on a monthly basis, it naturally provides an opportunity to take stock, briefly disconnect from the day to day running of the business, and focus on ‘where are we today — where are we going tomorrow’. It results in insights and prompts discussions that can make all the difference in increasing the odds of your success.
To sum up, investor comms is one of the most powerful tools in your arsenal to build strong relationships and drive alignment with a group of people who are vested in your success and can be instrumental in making it happen.