Welcome to a new BetaKit weekly series designed to help startups and entrepreneurs. Each week, investors Roger Chabra and Katherine Hague tackle the tough questions facing founders today. Have a question you would like answered? Tweet them with the #askaninvestor hashtag, or email them here.
You’ve done it, you’ve raised your round! Congratulations. So, now what? What role do your investors play after the funding round, and how do you keep them engaged? This is the question we’ll tackle in this week’s post.
Before we dive into strategies for maintaining investor engagement, let’s talk about what we mean by engagement and why ongoing engagement with your investors is in your interest.
For our purposes, let’s define engaged investors as investors that are on your side. They keep up to speed on the state of the business, and whether they agree or not, they have taken the time to understand your current objectives and priorities. They are responsive, spread goodwill about the company, and are always willing to help. Unengaged investors don’t stay up to speed with the company’s performance, and in some cases, believe so little in the company’s current direction that they have written off the company entirely. They are no longer willing to spend their social capital to support you and may spread a negative opinion of the company among the investor community.
The primary reason to keep your investors engaged in your company is that these investors can play a large role in the success or failure of any future fundraises. A happy investor may choose to reinvest, a positive signal to the market that can help you attract further investment. An unhappy investor, one that decides not to reinvest, can poison the well. Even if you don’t realize it is happening, potential investors will often call your existing investors as a back-channel to learn more about you before they decide to invest.
Investors want to help you. In fact, many VCs are actually paranoid that they aren’t actually doing enough to help their portfolio companies.
New investors look to the opinion of your existing investors as a sign of how your company is performing because these investors are presumed to have insider information. It’s important to note that this negative signalling generally only happens with institutional investors, who are presumed to have the capital to continue investing. An angel or a seed fund deciding not to reinvest generally isn’t a negative signal to the market, unless they are known to have enough capital to do so.
Beyond just keeping your investors on your side for the purposes of future funding, there are other more proactive reasons to keep up engagement with your investors. Presumably, you chose to work with your current investors for a particular reason, perhaps their expertise or connections in a certain area. By maintaining engagement with your investors, you can take advantage of that benefit over time, as need arises.
A final, more practical reason to keep your investors engaged is simply to encourage their ongoing responsiveness. Inevitably you will need something from your shareholders, like the signing of legal paperwork. Having a good working relationship with your investors will help expedite this process, one that can often feel a lot like herding cattle.
Now that we’ve covered what investor engagement looks like and a few of the primary reasons you want to keep you investors engaged — let’s talk about how you actually engage investors post-fundraising.
This may seem obvious, but the number one way to keep an investor engaged is to perform well. If you’re growing rapidly, taking on new investment, and ultimately growing in valuation, your investors will be happy. They will speak proudly of you and stay on top of your progress. There is no amount of updating that can match that type of engagement. It is when you aren’t one of the best-performing companies in an investor’s portfolio that investor management becomes much more important.
Most entrepreneurs choose monthly updates as a way of keeping ongoing engagement with their investors. Monthly updates generally include an overview of company progress, KPIs, hiring updates, challenges and opportunities, the company’s runway, and any asks of your investors. By sending regular updates, you stay top of mind and you avoid your investors getting anxious and sending you inbound questions. Actively engaging your investors through group updates also helps keep you accountable, allows you to control the conversation, and minimizes the amount of work required to manage each individual investors.
Be sure to send your updates regularly, and follow consistent sets of key metrics. Don’t be afraid to share your challenges. Your investors would prefer to hear about your challenges early, so that they can help or so that later on they understand the need for further funding to increase the company’s runway or why the company needs to pivot.
Toronto-based startup Shoelace recently shared a great post publishing a year’s worth of their investor updates. I highly recommend checking it out as an example of how to prepare monthly updates of your own.
Another way to maintain a strong working relationship with your investors is to have ongoing social or in-person interaction with them outside of your email updates. In-person interactions, particularly those in a more casual setting than a boardroom, can help release and tensions and remind an investor why they invested in you in the first place. They can also make you seem more human, and in my opinion, people are much more likely to help people than companies.
A final caution that I will add is that one of the easiest ways to delete goodwill is to make your investors chase you for your reporting requirements. If you are supposed to deliver financial statements to your investors at the end of the year, do it on time or early. It is small things like that investors will really appreciate, particularly when they are chasing down the rest of their portfolio.
Roger’s take:
So here’s a dirty little secret: investors want to help you. In fact, many VCs are actually paranoid that they aren’t actually doing enough to help their portfolio companies. No early stage VC wants a portfolio CEO telling the community that so and so is a deadbeat investor. That is professional suicide. Take advantage of this fact. Engage with investors and engage often.
In terms of prioritization, you should engage more often with whichever investor led your last round of financing. Of course, you may have a specific issue or topic that is better suited for one investor or another, and that is perfectly fine. Generally, however, you should focus on a building a valuable and recurring dialogue with your lead. It’s an unspoken rule around a board table that the last investor usually “drives the bus” when it comes to influence and direction over a company. You want to work hard to keep your engagement level high with your lead.
VCs are busy and are often travelling, so it helps to set up scheduled, recurring meetings with your lead. This can be a phone call once a week or once a month. As Katherine says, try to do at least every couple of these in person, if possible. Make a schedule and stick to it. Feel free to phone, email, and text in-between meetings but at least you’ll each have time earmarked in your calendars for those stretches of time when you are both busy.
It’s essential that you gain credibility with your lead by sharing both good AND bad news in your conversations. Good early stage investors have seen a lot and know that startups are messy. Don’t try to paint a different rosy picture. Make sure you share your challenges and ask for help on them.
Finally, to expand on Katherine’s comments, make sure to get your board decks out early. I have a saying that “the better a company is doing, the earlier their board deck gets delivered to investors.” Nothing is worse than getting a board deck or update the day before or the day of a board meeting. This is a colossal missed opportunity to have everyone coming into a board meeting and up to speed on your opportunities and challenges. If your VC says “please print out a copy of this deck for me to have at the meeting,” you know you haven’t sent the deck out early enough. Small things like this undermine your credibility.
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Feature photo via Unsplash