Keep Your Investors Informed
So you did the rounds and finally secured your seed funding after many months of building out your prototype and arduous fund raising all the while bootstrapping. Congrats on that milestone! There is much work to be done in turning that largess into the accelerant that will launch your startup into a sustainable and growth business. Just make sure you keep your investors updated on what is going on.
There is a lot that needs to be done once you have been funded. You are essentially on the clock once those funds are wired into your account. There is product to build, customers to lure, press to contact, marketing campaigns to execute, people to hire, etc., etc. All of this is on a condensed timeframe because you probably only have enough cash to cover the team for 12 – 18 months till it is lights out. It is understandable if reporting back to investors seems like a chore under the circumstances. This is where many entrepreneurs make a huge mistake in two ways.
When you were gathering investors, you probably sought out investors that could be helpful, rather than those that simply wrote checks. Those “value-add” investors generally have the type of expertise, connections, and sound business thinking that can help you out in a pinch. They also probably are willing to sacrifice their own time and priorities to roll up their sleeves if asked. It is like having an additional set of advisors who are supportive and committed to insuring your success. Rarely will “dumb money” investors provide such assistance or attention to your needs.
An important element of fund raising is building trust and confidence with investors. For all the talk about big ideas and killer teams and awesome product and star investors, the biggest part of getting someone to sign a check is trust. If you as the founder cannot build a relationship built on trust and convince them that you are the best steward of their funds, then it is very unlikely that they will jump on board.
Trust is the foundation of all relationships. This is true of customers, partners, employees, co-founders as well as investors. Without trust, other motives, machinations, and inclinations enter to fill the void. Therefore, when you fail to update your investors on a regular basis, the mind of the investor turns not to rosy scenarios, but to all sorts of negative thoughts of imminent failure. In the absence of information, the imagination can wander to all sorts of nightmare scenarios that end poorly for the startup and the investor’s money.
Could this be your startup right now?
It does not take enormous effort to update your investors. At minimum, an email or call every month summarizing the previous month’s highlights, challenges, and milestone progress should be standard practice. If you are keeping any sort of metrics (hopefully you are), then pulling this together should not be onerous. Reach out every so often to your investors on a one-on-one basis to gather their feedback on your progress and to pick their brains. Grab coffee or a quick bite on occasion. Invite investors to a startup outing or happy hour from time to time. Identify ways that you can get investors involved in supporting or participating in your startup. The point is not to fill up your already busy schedule or to make busy work, but rather to give investors confidence that things are still up and running. You are continuing to build that relationship of trust.
However, things may not be going well and the inclination is to hole up in your startup bunker till the situation improves. That is a serious mistake. Never hide from your investors! They are there to help, especially when you are hitting a rough patch. This is the moment when sound advice could save your startup. Plus, investors realize that they take a risk investing in startups. They can accept poor results or bad news if informed in a timely manner, but they are much less accepting of surprises well after the fact.
Do not keep your investors in the dark. It is easy to do in the throes of the startup struggle. Even if you have a formal board of directors at the early stage, you have a responsibility to all of your investors. Your biggest fans are the very people that put money on the line for your behalf. They are invested actively in your success and acutely feel your failures. Do yourself a favor and make an effort to communicate on a regular basis with your investors and get them involved where it makes sense.
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