IR FOR STARTUPS: 5 TIPS FOR BUILDING RELATIONSHIPS WITH INVESTORS
Young companies with innovative but unproven business ideas are often faced with a lack of the necessary financial resources to realize their goals. Fortunately for them, the startup scene is currently awash with capital as investors seek greater returns in a low interest rate world. Venture capitalists are raising record funds. In fact, late-stage venture capital fund IVP, recently closed on $1.8bn for its 17th and largest flagship venture fund. The firm is spinning the narrative that the purpose of the fund is to place bets on more mature, high-growth tech companies, however, it could be argued but this war chest is reflective of the volume of capital being deployed into the venture capital space in pursuit of the vast opportunities in the tech boom.
Equally as important after raising capital is that a company establishes a good investor relations strategy and continues to build trusted relationships with its investors. This relationship can pay off down the line as, in the majority of cases, investors from previous fund-raising rounds are approached and involved in subsequent capital raises. Building solid investor relationships is also crucial because those investors are assuming a huge amount of risk. There is no data on prior company performance and there is a high level of uncertainty on the customer-side concerning the use of nascent technologies.
With those uncertainties in mind, communication with existing and potential investors should be seen as essential for the survival of a fledgling company. Having a dedicated investor relations officer (IRO) is not a regulatory requirement at this stage, however, it’s best to pay attention to your investor relations sooner rather than later. Luckily, investor relations for a company with a limited number of shareholders and investors is inherently easier and less complex than for larger ones.
Here are some tips to formulate an investor relations strategy for early-stage companies:
Honesty and Transparency
Regardless of investor (and company) size, open, honest and transparent communication should be the top priority. This is particularly pertinent when working with early-stage investors who have experienced successes and failures with other investments. Those experienced investors can give you valuable advice when trying to allocate capital to a startup, but only with open and transparent communication can they be helpful in crisis and critical situations.
Character Matters
Young companies should seek to be proactive with their investor communications and go beyond sharing only what is required in the shareholder agreement (e.g. financial figures). Gain trust and confidence from investors by sharing additional information such as the results from partner discussions. While your company is in its early stages, communication can and should be informal and proactive between the company and investors.
Timing is Everything
Given the dynamic nature of startup companies, information should flow continuously rather than at fixed points as one would see with a listed company. Changes in business operations should be communicated quickly and efficiently between the companies and its shareholders.
Tell Your Story
When considering what content to distribute to its investors, don’t limit your communication to a discussion of business results. Excite the investor by letting them know where you are going as a company and how you plan to get there.
Solidify Relationships
Relationship building between the investor and company can take many forms including face to face, written communication or video call. Make sure to tailor your communication style to meet the needs of your investors. Provide the right information using the right channels to build trust with your shareholders.
A solid investor relations strategy can help start-ups attract capital and retain investors. Open and honest dialog using a communication style that best meets the needs of investors will help build confidence in your company and keep investors engaged. Don’t forget the importance of two-way communication. Investors in start-ups can be valuable sources of information and guidance, but only if you are communicating with honesty and transparency. Finally, establishing robust investor relations is easier early in the company’s history and will lay a solid relationship-building framework for the future.
