Why Investor Relation Strategy is Important for Startups?

Congratulations!

Now that you have successfully raised your first round of external

funding. You must be feeling relieved.

Now, you want to switch roles, wear your operator hat and focus on execution.

But what about the investors? Who all have entrusted you with their money?

Execution is paramount, and so are investors. In all probability, this is not your last fundraising. A typical startup takes six years and more than three funding rounds to reach unicorn status. Unicorn is a status with a minimum valuation of $1 Billion.

You must be wondering, What Next?

You need a well-crafted investor relation strategy to manage your investors. Investor relation strategy should cater to both your current investors and potential future investors.

Current investors have the right to information under the shareholder agreement. Thus, proactively providing them with the information helps to avoid the last-minute rush. You have to engage your potential future investor because a warn investor pipeline would streamline the future fundraising process.

A strong investor relation strategy has the following benefits:

1. Trust and credibility built with existing and potential investors increase the probability of investors investing in a company and staying invested.

2. Addressing the questions and concerns of investors through the investor relation strategy makes investors more likely to invest in a company.

3. Keeping investors briefed about the performance of the company and future plans will shorten and smoothen the future fundraising process.

4. Communication and transparency established through investor relations between the company and its investors help to avoid misunderstandings and potential conflicts.

Who should be responsible for investor relations in a startup?

For all practical purposes, it is the duty of the Founders or/and CXOs to be the face of investor relations. However, the chief reason, the founders don’t prioritize investor relations is that they think their time would be well utilized on other pressing tasks. But, “You don’t want them to think that you only call when you need more money”.

What should be the elements of investor relation communications?

Investor relation communications are either period or immediate. The periodic communications can be monthly, quarterly, or annual. The most preferred reporting period is quarterly. Because the monthly is a considerably smaller time frame to report any material changes, and the annual is too long for the dynamic environment under which a startup operates.

Periodic Reporting Should Focus on the Following:

1. KPIs & Financial Health: Every startup should determine its KPIs, keep tracking them and keep reporting the same to its investors. KPIs can be financials, user/customer, and engagement. For financial health, the startup should convey its current burn rate, cash balance, and the runway left.

2. Recent Achievements: In this section, the startup should focus on delivering all the good news, such as new hires, key customer acquired, product/feature launches, awards & recognition, any specific milestone achieved, etc.

3. Roadblock or Concerns: In this section, the startup should convey any new material risk, key employee departures, timeline delays, regulatory issues, and misses with respect to the previous reporting period.

4. Plan for Next Reporting Period: In this section, the startup should focus on strategies it has or will put in place to address the roadblocks and concerns reported in the above section. Also, the startup should convey targets and guidance for the next reporting period. Targets can be target KPIs, product milestones, hiring plans, etc.

5. Call to Action: This is an optional section wherein the startup can ask for any help it needs from the investors, such as assistance in hiring for the key positions, introduction to identified clients, feedback on new features, etc.

The following events or instances should be conveyed to the investor immediately:

1. Significant Changes in Product or Operations: The startup should immediately convey any existential risk to the investors. It includes law suites, product pivots, the resignation of Co-Founder(s), regulatory changes, etc.

2. When the startup needs Advice or Help: This communication can specifically mentor investor(s) to seek advice on matters wherein the founder(s) feel stuck or need validation on certain aspects.

3. When Startup is in Financial Trouble: A startup should immediately convey to investors when they are in financial trouble or are left with less than six months of runway. It will help to seek bridge rounds or immediate financial assistance.

Would like to know about your investor relation strategy. Please leave your thoughts in the comments section below. I am happy to review your investor relation communication document and provide feedback. Reach out to me via email at info@venturecanvas.in