How to Connect with Investors and Choose the Right One
As the founder of several successful healthcare and technology companies, and an investor himself, Ray Shealy, CEO understands that great working relationships between investors and entrepreneurs are critical to a startup’s success.
Rev1: What is your strategy for reaching out to potential investors?
RS: The way I reach out to investors is, typically, I find a connection—a starting point for attracting investors. That might be they’ve invested with me before, and we’ve had some success. Or we’ve had failures, but they’ve seen how we worked hard to try to make it a success. Friends and family and current investors can also be good sources for finding new investors.
Another good way to find a connection with prospective investors is to consider how they might add value (beyond capital) to the business in some way. Do they have relationships or a network of contacts that can somehow create value for the business?
Another way to identify a potential investor is if there is some kind of emotional connection. Maybe they like your product; it appeals to them. Or they’ve had some experience in their family where they could have used your product.
How do you choose the right investors?
RS: Finding the right investors for your business starts with getting to know them. You want to have a relationship with your investors. Most checks are good checks, but you want to avoid the bad checks—instances where an investor’s expectations are misaligned with the business.
It’s your job as the leader of the company when you’re courting investors to make sure that you have alignment. You’re going to go through some highs together, and you’re going to go through some lows together. Make sure that those investors can weather the storm with you through the lows without upsetting the applecart.
It’s important that you get to know them, and that they understand and get to know you and how you operate. Having your goals and objectives are clearly aligned is essential for the company to be successful.
After funding, how do you keep investors updated?
RS: Investing is emotional, and your investors want to know what’s going on. Regularly communicate with your investors about how the business is doing. What works best, I find, is a quarterly report that is typically three to five pages that sums up the good, the bad, and the ugly with what’s going on in the business.
The quarterly report helps me to stay organized in leading the business. It provides built-in accountability, knowing that I need to crank out a report to the investors every twelve-weeks. That trickles down through the organization; they know that as soon as the quarter ends, we’re going to put together this report that tells investors how we’re tracking.
I find that by clearly communicating with investors where things stand, not only helps us be more organized in how we run the business, it also allows investors to add value. They say, “I see that this is going on. I have a couple of contacts that may be able to help you with that.” It tends to be very positive and very freeing and helpful to the business if you can regularly communicate with your investors.
What type of news do you share with investors?
RS: Graphs and bar charts work well. Investors can see regular progress and how things are scaling and growing. I always liken to the Ben Franklin methodology: What are the positives and the negatives? We start out with what went well this quarter and what didn’t go as well this quarter.
After that, we can get into the details of our product or service and financials. Some investors will never look at the quarterly report. Others will look at the bar charts and the graphs and spend three or four minutes going through the rest of it. Others will read every dot and tittle in the report, all the way from beginning to end—and they will give comments on it.
I like to sum it up at the end with our goals for the year and how we are tracking year-to-date to those goals. That’s always a good way to close it out. Those are the basic things that I think work best to have in your investor report.
What do positive relationships with investors look like?
RS: I think the relationship that you have as a leader of the business with your investors is very important. Have them come in and try out your product or service if you have something that they or their family can use. That’s always a good way to get them in the boat with you and maintain that relationship.
If your product or service is something that they cannot use, then the quarterly report or annual meeting with them is always good. Investors are busy people too, and they don’t necessarily want to take up a lot of your time.
At the end of the day, they’ve entrusted you with their money. I like a story that one of my investors said. “Ray,” he said, “these are my soldiers. Please deploy them appropriately.”
There is a responsibility you have when you accept other people’s money. One of the things that I despise in life is losing money for anybody. If you take that fiscal responsibility, and you understand that they have worked hard to create their “soldiers,” you know you have that responsibility to deploy them appropriately. Regular communication is one way to make sure you and your investors stay in synch.