Need for Investor Relations Today
While both founders and start-ups are living in unprecedented times at the moment, it is tough yet essential to handle investor relations strategically.
Investors are indeed treading cautiously in today’s uncertain times, in both the public and private market; however, keeping up with all different kinds of investors: business angels, venture capitalists and strategic investors can boost growth and function for young start-ups. At the same time, these boosts come with certain obligations that one must deal with as a founder.
Investor relations are often mistakenly considered synonymous to investor communication. In reality, investor relations can be defined as a startup’s contact with a group of well known investors. It is much more than mere communication as it involves effectively conveying and marketing your objective and plan that reflects an understanding of your company’s value, and growth strategy to the investor.
What Should Investor Relations Include?
In a nutshell, public and private investors need to know whether they should keep their money invested in your start-up or not. Further, frequent contact with investors allows them to reassess whether they should be investing in companies that approached them a few months ago.
You unmistakably need to include:
Other relevant information and reports that helps them determine why they should keep investing in you
How often should you talk to Investors?
You should meet investors even when you’re not fundraising. Staying in touch with investors will help you get an idea of their concerns, expectations and opinions which will prove beneficial to your pitch.
The first six months or so after the seed funding are spent in building and recruiting. However, you should start setting up investor meetings when you are 6-9 months away from the next round of funding.
Who is the right investor for you?
An investor who has:
Experience in your company’s vertical
A good understanding of your business model
Knowledge about your target customers
Not invested in the same space (eg. if you are building an on-demand legal marketplace, talk to investors that have experience dealing with and investing in legal tech startups).
An investor who has interesting perspectives on your product design, knowledge on how to leverage your data, or suggested novel marketing strategies.
Given the shake-up caused by the pandemic, certain sectors such as e-commerce have witnessed a significant boost, while other sectors such as real estate or last-mile mobility have taken a hit. Investors traditionally focused on the latter will now expand their horizons and will be open to investing in other sectors, such as SaaS or fintech. Such investors, who don’t necessarily have experience dealing with your startup sector, will have unique perspectives on your business. In the future, startup founders will have to pitch to a variety of investors.
How Frequently Should You Talk to a Particular Investor?
Investor feedback is valuable, but the most important thing for a founder is to run their business. Allocating 1-2% of your time to talking to investors when you are not fundraising is adequate. 30-40 investor meetings over a period of a 3-4 months is good.
Rather than meeting the investor multiple times, get a good grasp of their objectives and interests in the first meeting and follow-up after a couple of months with your updates. Usually, meeting the investor once before a pitch is a good idea. What questions should you ask?
Rather than feedback on your product (investors are not necessarily your customer base, and don’t represent a wider sample size), which should be mainly garnered from your aggregate customer feedback or consumer behavior information, focus on:
What excited them about your firm.
What they think is the biggest challenge in the next 6-12 months.
Whether or not your firm falls within their investment focus area.
What other information they would like to have before deciding on your firm.
Whether they have any advice for you.
Good investor relations is the key to securing funding in the future. How should you Manage Investor Relations?
Founders often feel investors keep them sufficiently updated, but only 50% of investors feel that their funded and current startups keep them updated on relevant matters such as KPIs, financials, key initiatives, and big hires. Transparency pays off. Core investors will stick with a startup that is transparent and clear in its communication. No one wants to associate with founders that lie and hide crucial information from their investors.
Give investors information that is relevant to them. All communication with investors should have 3 Cs, that is, it should be clear, consistent and concise.
Don’t avoid contact with your investors when there is slow progress to report. This is especially relevant in today’s age when many start-ups are facing issues due to the pandemic. Transparency is essential to build trust with investors. Take advantage of their knowledge and expertise to help you survive these hard times.
Your investors should have an aligned road map and knowledge of your KPIs. This would help you avoid misunderstandings and benefit from their guidance.
Keeping investor relations strong requires time and effort but also comes with huge paybacks. A useful strategy is to let one person (typically the CEO) among the founders stay the point of contact with the rest getting involved when needed.
Stay connected with investors through messages, texts and newsletters.
Leveraging the brand footprint: Communicating Growth Strategies with Investors
All aspects of growth need to be communicated at the right time to investors, such as:
Product growth and innovation
New opportunities for monetization
Execution of the monthly business plan
Delivery methods and product consumption changes
Sales and distribution partnerships
Leverage Brand Footprint: Social Media
Social media need not be just for self-promotion, it can also be an excellent channel to find new investors. You can search for the right kind of guidance and help you need through sites like LinkedIn and get connected with investors in a very short time.
One strong way to make your business grow and to attract the kind of investors you want is to blog about industry trends and interesting insights. Get investors to follow your social media, seek out platforms that publish insights relevant to your industry and try to get published on the same. These strategies are important in order to get the first meeting with an investor.
The Right Time for your Start-up
It is necessary to convince investors why it’s the perfect time for them to get on-board with your company. For this, you need to tell them the significance of your product, its transformative power and cultural fit with the changing scenario.
Economic Impetus - Better way to do things
Enabling Technology - Trajectory of Innovation
Cultural Acceptance - Reprogramming of consumer behavior
The Perfect Pitch
When you pitch your idea to a set of investors, you need to make sure they resonate with it. One way is to use numbers extensively. Numbers and measurable metrics are critical to show the impact of your idea even to investors who are not knowledgeable in that domain.
These are some of the crucial points that you need to inculcate in your email pitch:
Short and concise
Shows the newness of your idea
Giving investors the feeling that not investing in you would result in them missing out in an idea with huge potential
Authenticity in your language and points
Images, advisory board, and customer case studies always work
Point to specific content should they shouldn’t miss - new updates, innovations, developments
Have a persuasive and direct closing line
Mention your contact details without fail
Why Start-ups Fail
Some common reasons why some ventures are not successful are as follows:
You build something no one wants
Lack of focus
Lack of a team, single founder, living dead
Too much pride, too much press, superman founder who is unwilling to see or listen
Spreading investment too thin
Lack of a strong team
Raising too much money too soon
Not paying heed to an external perspective or feedback
Not being conscious whether your offering is ahead of its time or late or merges easily with the current market scenario
Scaling-up in haste
Learn the art of investor communications. While it takes time to master this, it would have immense benefits for your firm to guide you through these uncertain times as well as later. Utilize your time with them to the very best of your abilities.
Build a network of founders who went through the same experiences as you so that you have someone to guide and mentor you
Find the right team rather than keeping an eye on all functions yourself
Build a persuasive pitch deck
Pay attention to the content you present and show a strong understanding of the finances of your firm
Go for real, practical timelines - multiply 3 to your estimated timeline for a realistic timeline
Accept rejections- it is a part of the journey; move on
The more your database of investors grow, the more you will learn and grow. They are always looking for the next big investment opportunity; being in touch when your startup is ready will provide rapid growth for your company. What does 100X.VC look for?
100X.VC invests in early-stage start-ups. We aim to identify well scalable opportunities and take them to the next level. We invest through iSAFE notes.
We sift through the following elements before investing:
Market Size Opportunity
Business Model Strength
Conviction of a minimum 20x returns
Q&A Q1: How do you go about periodic meetings with investors? Why would the investors be interested in this?
A1: If you are funded, the investor will want to keep in touch for updates. If you are not funded, then it is necessary to send them emails and news about your firm, which will push them to invest in you if they are on edge. Frequent communication about how your start-up is doing could generate more interest in your idea. Q2: What is the pressure on investors to step back from Seed/Angel investments as most companies are very early in doing so?
A2: This takes place if the investor does not have faith in the start-up to scale or meet its objectives. If their opinion does not alter in 6-12 months, they might back out. This would require an explanation to new investors in the next round of funding for the start-up.
Q3: Given the current scenario, how are future investments in start-ups likely to be affected?
A3: While it is not possible to predict the exact scenario, founders should focus on building an offering relevant to the changed circumstances. If you are in the travel or hospitality sector which has taken a huge hit, the prudent thing is to preserve cash. Funding and rounds will happen in the future as well, but the timespan and relevance of sectors might change.
Q4: How much sales would a VC like to see before they call it a proof of concept stage?
A4: While there is no concrete number, it is good to show a concrete proof of payouts and other strategies which give the impression clearly that your idea and business is here to stay.
Q5: Is it the right time to go for funding a travel tech start-up?
A5: While it is true that the travel sector has taken a huge hit, it is more important to convey to investors how your travel tech start-up is coping and managing the crisis with respect to data, finances and strategy. It is important to tell them how you plan to stay relevant in the new scenario and that will build confidence in your idea even if the sector as a whole is not flourishing.
Q6: How would valuations for new start-ups change in the post-COVID world? Would they be going down for new start-ups due to the economic slowdown or up due to many companies being hit the same way?
A6: Valuations might get bloated since they are a factor of the existing market scenario. However, founders should focus on the relevance of their product, its initial sale and making recurring sales happen rather than the valuation figure.
Q7: How should a start-up manage time between product building and brand building?
A7: A start-up needs to focus on both equally for a good fit.
Q8: How will cross-border transactions be affected in the post-COVID world?
A8: While it is not possible to predict the same since it is not the current priority, it will open up after some time span. The priority for start-ups should be determining how they stay relevant in the changed context.