Beyond the Pitch
11 Dos and Do Not’s for Winning Investor Communications
The relationship between entrepreneur and investors is a key determinant of whether the startup succeeds or not. And the way that an entrepreneur chooses to communicate with investors is key to the relationship.
When it comes to communicating with potential, current, and future investors, these 3 Tips, 5 Techniques, and 3 Thou Shalt Not’s will help any entrepreneur start and stay on the right foot with investor communications.
3 Tips to Create a Successful Pattern of Communication with Any Investor.
1. Before you make contact, learn about that potential investor, just as you would for a customer.
Each investor has a target market. Check out the investor’s website and TechCrunch. With a little homework, it’s not hard to figure out the stage of company, sector and industry, and geography where a VC or angel prefers to invest. Make sure your business fits their persona; otherwise, you will waste everyone’s time (especially yours).
Determine a fit with an investors’ target market, go deeper to understand the investor’s preferred investment size and the stage of an investor’s current fund. How much of the fund is left for investment and how much is dry powder for earlier portfolio companies? Does the investor prefer investing alone, or will they syndicate?
2. Alignment of interests and expectations is key.
Open a high-level conversation about the investors’ feelings on returns, control, and board seats. Investors know what they want, and they will tell you. The entrepreneur’s job is to listen and learn as much as possible. This is your opportunity to ground the relationship in openness, respect, and trust; it is not the time to try and gain the upper hand or to start a debate. If you have concerns about what the investor tells you, go offline and use a trusted mentor or advisor as a sounding board. Don’t become confrontational with the person you are trying to receive money from.
If you expect an investor to be flexible, you will probably be disappointed. Unless you are a serial entrepreneur (and even then), investors will have much more experience with this process than you do and the upper hand. They want what they want. Don’t say yes or no too quickly. Keep the dialogue going.
Ask to talk with at least three of the CEOs in the investor’s portfolio. If you hear the same thing from two of the three, whatever they are saying about the investor is probably true.
3. Patience, organization, and tenacity are required.
Fundraising is a disciplined and long process. It is an opportunity to demonstrate an entrepreneur’s passion, drive, and track record to prospective investors, but there are no Mulligans. If the communications start off with confrontation, you can’t un-ring that bell.
Follow a system to track all prospects and contacts. It can take 70 to 80 at bats to gain a single hit—but there is a potential silver lining. A “no” may turn to “yes” when an investor has a new opportunity to co-invest.
5 Techniques to Implement the Tips.
1. Keep all communications brief, professional, and meaningful.
Establish a regular pattern of communications between formal meetings. Speak to investors face-to-face and over the phone. DO NOT rely entirely on email. Do not use text for anything meaningful. Tell the truth; be a straight-shooter.
2. Share with potential future investors: High-level, non-confidential company news.
- Email, e-blast, personal letter (as news happens)
- Team and hiring
- Business development
- Product launch and enhancements
- Significant industry or market recognition
- Close with a specific ask if there is one
3. Share with current investors: Periodic financial and operating updates.
- Investor Reports/Board documents (quarterly, printable PDF)
- Executive summary
- Business Plan Milestones (wins, setbacks, opportunities
- Financial/Sales Metrics
- Product Update
- Market/Competition Update
4. Keep current and at-the-ready.
- Data room—all contracts, agreements, survey data, customer information, competitive analysis, HR documents, background reports, board minutes, patent information, NDAs, etc.
- Up-to-date executive summary and brief non-confidential investor presentation
- Cap Table and funding history
5. The content and process of all Board communications (oral and written) require special care and attention.
Typically, an investor will require one or more seats on the company’s Board of Directors. Additional investors may have observers’ rights. Call board members; seek their advice. Keep them informed of all major developments.
Encourage board members to give you a call between meetings. Most will, you don’t have to make the invite. But by stating, “please give me a call” or “drop by,” you show that you are open to that level of involvement and commitment from a board member.
Board members bring different expertise; many like to be involved. Plus, it’s their money; they have expectations on their capital. By encouraging them to call, it just shows them that yours is an open door. It’s one more positive thing in the relationship.
At a minimum, before any board meeting, discuss the topics that will be covered with each board member individually. This saves meeting time and creates an opportunity to answer questions, hear objections and suggestions, and revise your action plans and recommendations based on what you learn. Send out all board materials at least forty-eight hours in advance of each board or board committee meeting.
Follow the good practices you learned when you were writing your business plan. Summarize your update to the board and provide the goals for the meeting on the first page of the board materials you send out. At the start of each meeting, summarize the company’s overall goals, strategy, and tactics.
Board meetings are the official record of each board meeting. They should be reviewed for accuracy and approved by each board member then filed in a secure location with other permanent records. Board minutes for private companies are not public documents; however, they can be used as evidence in legal proceedings and will be reviewed as part of any due diligence.
Three Thou Shalt Nots:
- Fail to honor commitments laid out in the investment documents
- Hide the bad news from investors as long as you can
- Give investors cause to ask:
“Why don’t we ever hear from them?”
“Why do you we only hear from them when they need money?”
“What am I signing again?”
Good relationships are built and sustained by effective and open communications. This is especially true between investor and entrepreneur—and it begins the very first time you meet.
Portions of this material were first published in The Entrepreneur’s Path: A Handbook for High-Growth Companies., by Tom Walker.
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