Finance · 17 March 2016

Don’t keep investors in the dark, they might be crucial to future success

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Investors have a right to know how their money is being nurtured

In his latest column for Business Advice, Crowdcube co-founder and CEO Darren Westlake discusses what makes a good investor relations strategy and why they’re important.  

Investors are your lifeblood and you spend a good deal of time and effort wooing them and liaising with them in order to secure investment. So, you’ve done the hard part and you’ve raised the finance needed to start or grow your business – it’s back to business as before, surely?

Some business owners may assume that as a private company, the concept of “investor relations” doesn’t really apply. At least not in the way that it would if you were a public company, but it is still very much part of what a business needs to do once it’s raised money, particularly if you’ve raised finance through crowdfunding.

People who have invested in your company have a right to know how their money is being nurtured and have a vested interest in seeing it being well managed. Not only that, many investors are driven to invest because they want to be part of your business’ future, they believe in you and your business and they want to be part of its journey, so keeping them updated is an integral part of that on-going relationship.

This year, the industry is expecting to see an increase in Series B investment opportunities, and often it is existing investors who will go on to invest in the next round. Building your credibility with these people from the start will go a long way in helping you raise further funds in the future.

Crowdfunded business can learn a lot from the way that quoted companies communicate with their investors, and so much more can be done beyond sending an annual report to shareholders and enabling A-shareholders to vote at general meetings. By adopting some simple strategies, you can start to build a solid reputation with your stakeholders as being reliable, transparent and accountable.

Ultimately, a good investor relations strategy is about effective dialogue between your company and your investors – both existing and potential. Three things to do at the outset include:

(1) Know who your existing and potential investors are. One of the most important elements of effective investor relations is to manage a database of registered shareholders and investors who have shown an interest, but not yet committed. Identify the investors you need to build a direct relationship with and keep their contact details up to date.

(2) Decide what you’re going to communicate to investors, when and how often. Make it regular, clear, consistent and part of your business culture.

(3) Let your investors know the ways you will communicate with them and where they can find additional information – including email, social media, the website or events.

Where to start

Direct communication

Many private companies rely on media relations and press coverage to do their investor relations for them. While this is very effective at getting your message out there, it may not be seen by all of your investors, and your message cannot always be controlled fully.  If you are sending out a press release, consider repurposing it into an investor-focused email or a blog update. News needs to be shared as widely as possible and your investors should be top of that list, otherwise you risk losing their interest.

Create a newsletter

This is a great way of wrapping up news if you haven’t had any major news announcements. Some companies like to do this regularly, either monthly, quarterly or half year.

Issue an annual review

After your year-end, issue a financial and operational review statement. This is more than just sending your annual accounts and reports.  Make your accounts accessible and explain any highlights. An annual review is an opportunity to talk about what you’ve achieved, where you are in your plan and showcase some of your products, services and initiatives. Also look to the future and let your investors know what your prospects are for the year ahead. But make sure it is balanced. If you have any major risks or have failed to reach a milestone, then explain why and what you are doing about it. Private companies often shy away from this, but in fact it reaffirms your credibility.

Make the most of your AGM

Consider making your annual general meeting (AGM) an event – invite your investors to attend and present on your progress and plans. This is a fantastic opportunity to meet with them and get feedback.

Have a dedicated investor section on your website

This doesn’t have to be complicated and you can even password-protect it. But as a general rule, include details of your ownership structure, board members, FAQs, details of the contact in charge of investors, investor documents, significant news, any presentations you may have done and upcoming events.

You may have this spread across your website already, but by having the information that is relevant to investors in one place communicates the importance you place on them.

Don’t forget to leverage your investors

Existing shareholders can be extremely useful in making introductions to potential new investors and facilitating business connections. They can also have insight into an area of your business and are often willing to share their knowledge and experience, acting as mentors or advisors. By noting their questions, you can learn what sort of information they are looking for and how to refine your pitch for future funding rounds.

As well as being potential customers, your investors could be your biggest brand advocates, they have a vested interest in your business and if they are kept informed and engaged with your business, they’re more likely to spread the word about what you are trying to achieve.

My advice is don’t keep your investors in the dark. As part owners of your business, they are important and you have a moral duty to keep them informed of the way the company is performing – you never know, they may well be critical to your future growth and success.

Up next – Six common leadership pitfalls small business owners fall into.

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ABOUT THE EXPERT

Darren Westlake is the co-founder and CEO of Crowdcube, an online platform that enables startup, early and growth-stage businesses, from a range of sectors, to raise finance with the added benefit of being backed by the crowd.

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