Barbara Yastine, Managing Director of Golden SeedsJune 20, 2019
Fundraising takes hard work and a lot of time. So, it is no surprise that once the checks clear, entrepreneurs are eager to get back to building their businesses. Their investors want that, too. However, once the money is in the bank, some entrepreneurs may forego building stronger, broader and deeper relationships with investors by skimping on communications.
The entrepreneur thinks she has saved time, but the truth of the matter is that they have likely missed introductions, business opportunities, talent referrals and the opportunity to expand an enthusiastic future funding base.
Ongoing communications should be thought of as a powerful tool for turning investors into champions of your company and of you.
Two of the first companies I funded as part of Golden Seeds opened my eyes to the power of proactive investor engagement.
As a new member, I took for granted the financial reports that arrived like clockwork. I read the email updates on financial and business drivers, participated in the regularly offered calls and lunches with the CEOs. I listened to my fellow angels ask a lot of smart questions, make suggestions and respond to specific management requests with introductions and candidate referrals. I found myself more confidently able to talk up the companies outside of Golden Seeds and noticed growing buzz about both companies within our network. When the time came for subsequent funding rounds, new Golden Seeds names appeared. While the CEOs were hitting their milestones successfully, they also astutely built their brand and an expanding base of champions.
Then I noticed that some of my later funded companies didn’t communicate much at all. It took a while for me to realize this, as I was preoccupied with the good communicators!
I am much more confident and positive about the companies that are strong communicators than the others. They have a greater share of mind because I hear from them more often. As a result, I naturally look for opportunities to discuss these companies with colleagues and friends who might have an interest in referring potential customers or investing in them.
Golden Seeds, and most institutional investors, will typically require information rights from funded companies, which are formalized in the investment documents. In simple terms, information rights require the companies to share basic financial results with their investors periodically, usually every quarter. If you invest in a company as a group, one of the advantages is that the group can negotiate for these rights if they are investing a meaningful sum in the company. Sometimes angels invest individually with no bargaining power. Bottom line, information rights are extremely valuable, but not always obtained.
On the flip side, entrepreneurs should not mistake a quarterly distribution of basic financials for an effective investor engagement or communications strategy. The starting point to engage investors is a regular sharing of information about company developments, what is working and what is not.
Candor and consistency of content and timing are key. Following is a suggested investor package that that helps you get the most out of your investor communications:
Standardizing the package and data set makes updating efficient. Quarterly or monthly distributions are the most effective in maintaining investor engagement. It is always helpful to include a brief narrative and tell investors ways they can help the company, such as with hiring efforts or obtaining key introductions.
Entrepreneurs can get substantially more by supplementing distributions with live investor calls or meetings. Some companies do a quarterly call, and others hold them ad hoc. Other companies extend invitations to all investors, while others hold meetings with a smaller group. However structured, there is no substitute for live interaction between CEOs and investors.
I am a director of four public companies, two of whom send out monthly updates to the board from their CEOs. The other two CEOs send out frequent ad hoc communications. In all four cases, these communication routines evolved as an efficient way to fill the information gap between board meetings and to minimize surprises.
Successful CEOs know that honest and frequent communications go a long way in maintaining the support of important stakeholders.
In addition to seeking good financial returns, angels tend to bring strong qualitative motives to decisions about which companies and entrepreneurs to back — wanting to invest in women, confidence in the leader herself, a desire to invest alongside people they like or admire, personal interest in an industry or product niche, a theme that resonates.
These drivers combine to make most angels eager to open up their networks and use their social capital to help their companies. But time, attention and social capital are precious. It takes knowledge and conversation for someone to have an “a-ha!” moment about a potential strong match that inspires them to take action.
Entrepreneurs invest their hearts and souls in their businesses. A modest but disciplined investment in communications and engagement can turn investors into champions of you and your business.
Learn more about how women entrepreneurs are achieving success with Golden Seeds.