Editor’s note: Investor and entrepreneur David Gardner is founder of Cofounders Capital in Cary and is a regular contributor to WRAL TechWire.
CARY – Even if your early stage company has venture backing you probably have at least a few other investors on your cap table. Some cap tables have many small investors that put up money to get you through to your first major VC round. Now that you are venture backed it’s easy to forget about those smaller investors who are not on your board and whose money has long since been spent. We are constantly reminding our founders to keep their investors informed with regular updates to both reap the benefits of good investor relations and to avoid the consequences of not doing so.
Regular investor updates can save you a lot of grief. There are many reasons to do these updates the least of which is because it’s the right thing to do. If you take someone’s money on the promise of a potential return then it is only decent to keep them informed as to how things are going.
Never underestimate how even a very minor investor can make your life miserable the least of which may include regularly badgering you with phone calls and requests for information. It is a truism that whenever there is a lack of information people will almost always assume the worst so fill that gap before it fills itself. Many investors, especially angels suffer from buyer’s remorse. They can feel betrayed when you stop communicating with them after courting them hard for their dollars. If things don’t go well with your venture, they may find fault with the original investment information you provided them and sue you personally for loses. A few investors not feeling the love and complaining about you can really hurt your reputation in the community costing you sales, partnerships and future investment dollars.
It is important to have good investor relations and nothing creates this better than letting them see how hard you are working to try to make them a good return. If you only get in touch with your investors when you need more money, they will be very reluctant to double down on your venture or sign off on paperwork when needed. When you raise your next venture round part of most VC firm’s due diligence involves reference checks with current investors. These VC firms rightfully assume that they will be treated no better than your previous investors.
We suggest getting on a cadence of at least every 60 days for sending out your updates. Your investor update should be concise and mostly high-level. We give our entrepreneurs examples of these to use. Updates should include company highlights, current challenges and information about how your investors can help you. Don’t make these too rosy. Be factual and candidly present the good and the bad. Demonstrate that you are learning things, fixing problems and always have a plan to move forward. I know time is precious in a startup but this is one item you really have to make time to do. If investors regularly see that you are working hard, struggling with the issues and doing your best for them then they will be much more likely to continue to support you in the future and much less likely to turn on you if things go south.