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Pitching Your Startup: Effective Strategies for Communicating with Investors/
Startup founders face immense pressure in securing funding and scaling their businesses. In such a challenging environment, they may overlook the significance of stakeholder management, which is crucial for the success of their venture. Startups must learn to communicate effectively and frequently with their investors to enhance accountability, encourage feedback, and attract more investments. While the impact of communication may be difficult to measure, it can be significant, as demonstrated by Tesla’s Elon Musk’s tweet in 2018 that resulted in $20 million in fines for both Musk and Tesla. In this article, we will outline how founders can optimize their relationship with investors by communicating regularly and effectively.
Make Time to Connect
One reason why young companies communicate poorly with their investors is that they prioritize other tasks over stakeholder management. However, nurturing investor relationships is a crucial responsibility for founders. Investors are not just funding sources but also business partners who expect to receive periodic updates. Founders must not wait until they need more money to contact their investors. They can keep investors informed by sharing periodic reports that highlight the company’s performance. These reports should be concise and not take more than half an hour to prepare once the first report is done.
Establish a Rhythm
The most common mistake that founders make is thinking that investors are doing them a favor. This thought makes them hesitant to share frequent information about their business or seek guidance from investors. Founders must remember that investors are not patrons but business partners. They invest in companies to see their investment grow and want to know how their investment is doing. To establish a rhythm, founders can follow the guidelines set forth by the US Securities and Exchange Commission (SEC) for public companies. Although startups may not be required to follow SEC disclosure guidelines, they can serve as a helpful template for developing an information-sharing framework.
Keep It Concise
Investors in the tech world have short attention spans and prefer to receive brief, relevant information. Founders must communicate essential facts and pieces of information in their updates, including the company’s financial health, primary key performance indicators (KPIs), milestones, and challenges. The reports should not exceed two pages and must be consistent to enable investors to compare different periods, understand the startup’s evolution, and respond with better insights.
Ask for Help If You Need It
Founders may feel that asking for advice could undermine their image of strength and reliability. However, investors typically want to help startups succeed, and founders should expect investors to add value. Founders can send monthly updates with crucial information to all their investors to signal that they are receptive to dialogue and guidance without ceding control. Investors can offer counsel and open doors for the company, and founders must be accessible within reason.
Communicate Bad News Promptly
Founders of early-stage startups can feel nervous about disclosing that they are facing a crisis, but it is unlikely to surprise investors. Good investors know that around 20% of new companies fail in the first year, and 50% meet their end during the first five years. Young businesses must be proactive about communicating the challenges they are facing ahead of time. Founders must hear the bad news first from their investors and communicate with them constantly.
Paint a Complete Picture
Founders must communicate with integrity and avoid exaggeration or overstatements. They must be careful not to oversell their capabilities and set unrealistic goals. Realistic goals and regular communication with investors can build a network of investors for future projects. Trust is a critical element of investor relations, and founders must communicate to reinforce it.
Communicate for Success
Founders should take note of the importance of effective communication with investors. Regular communication with investors can help build trust and strengthen the business relationship. It can also provide valuable feedback, advice, and networking opportunities.
To effectively communicate with investors, founders should make time for periodic reports, establish a consistent rhythm, keep reports concise, and ask for help if needed. Founders should also communicate bad news promptly and paint a complete picture of their business plans and goals.
By following these guidelines, founders can maintain a positive and productive relationship with investors, which can lead to long-term success for the startup.
Investors play a crucial role in the success of startups, and effective communication is key to building a productive relationship with them. Regular updates and periodic conversations can help startups optimize this relationship and capitalize on the experience and knowledge of their backers.
Founders should make time for communication, establish a consistent rhythm, keep reports concise, and ask for help when needed. They should also communicate bad news promptly and paint a complete picture of their business plans and goals to maintain trust and credibility with investors.
By following these guidelines, founders can enhance accountability, encourage ongoing feedback, and attract additional investments. Effective communication with investors can help startups enhance their networks, strengthen their businesses, and prepare for the challenges of growth.