21 Jul Enhancing Relationships with Investors
In these challenging financial times, good relationships with shareholders are more important than ever. Maintaining a positive relationship with current investors is especially critical because they could very likely be the best source for leading a company’s next round of financing. Here are some tips for doing just that:
Treat investors like customers! Understanding the needs and objectives of investors is important in meeting their expectations. It is as important for them (as well as the company) that the business generate positive cash flow and increase shareholder value within a certain communicated time frame.
Define your obligations. It goes without saying, but when you accept equity capital from an investor, you have an obligation to grow something of value from that investment. Make sure your investors understand how you are going to achieve this mutual objective. By clearly communicating the established goals, expectations and then progress, you strengthen the relationship with your investors.
Set realistic objectives. Keep in mind the importance of setting realistic projections and promises. Try to avoid disappointing investors by avoiding unrealistic projections. If unfavorable variances from the plan become probable, communicate them sooner rather than later to foster a relationship of trust and respect. Keep those communication channels open and use them – good information can run both ways.
Use road maps. All investors should have a copy of the “road map” that you intend to follow to achieve company goals. Make these “road maps” available as quarterly or annual plans that include a discussion of these and other items:
Financial results, discussion of financial results and future projections
Technology development including new intellectual property
Significant partnerships, joint ventures and licensing agreements
Efforts to build the management team
Benefit from expertise. Consulting with your “expert” investors such as venture capitalists and strategic angel investors on important matters can also be a smart business move. Seeking advice from these groups on issues they are knowledgeable about is not only a great way to benefit from low-cost advice, but also affords an opportunity to show respect for an investor’s field of expertise and ideas.
Cash is king! Cash burn rates are an often used term and of concern in recent years. Investors want to know how money is being spent and understand how long funds will last. When capital is scarce, investors are often watching their own reserves closely and will be particularly concerned about how invested money is spent.
Exceed expectations. The bottom line is that recipients of invested capital have a responsibility to spend funds in a prudent manner to attain results. Making your current round of financing last longer than planned is a good way to strengthen your company’s relationship with investors and set the stage positively for the next round.
Deron Curliss is a partner in the Madison office of Grant Thornton and a specialist in high technology start-ups, business development, financing and accounting and tax issues. He can be contacted at 608-286-6909.