Investor Relations from Investor point of view
Your investor is your biggest ambassador in the VC world. As an early stage founder, establishing strong investor relations is crucial for the success of your startup. Investor relations for a startup refers to the strategic communication and relationship-building efforts by a startup with its investors, both existing and potential.
Why investor relations?
One of the most significant benefits of investor relations is the ability to attract funding. By establishing credibility and maintaining transparent communication with investors, startups can access additional capital to fuel their growth, develop new products, expand into new markets, and invest in research and development. It also helps the startup maintain a positive reputation in the investment community, which can attract further interest from potential investors.
Positive investor relations can lead to a higher company valuation. When investors have confidence in a startup's management team, business model, and growth potential, they may be willing to pay a higher price for the company's shares, increasing the overall valuation of the startup.
Each meeting with investors can be a valuable learning opportunity. Engaging with investors regularly allows startups to gain insights into market trends, investor sentiment, and industry developments. This understanding can help the company make more informed strategic decisions and adjust its approach based on feedback. Consistent updates serve as a way to reflect on the company's progress, challenges, and future direction.
At 100X.VC, we place a strong emphasis on maintaining robust investor relations, recognizing their significance for early-stage founders. Most founders in this stage may not have a board of directors, but creating accountability is essential. One of the best ways to achieve this is by consistently providing updates to investors. We encourage founders to view investor reports as an opportunity for reflection and evaluation. It allows them to gain deeper insights into their company's trajectory and effectively articulate their vision. By fostering strong investor relations, startups can create a solid foundation for sustainable growth and success in the market.
While startups should maintain a certain level of transparency and compliance with relevant regulations for all their investors, the practice of targeting and engaging with specific investors can significantly impact the company's growth, success, and overall trajectory. Investors with relevant experience and expertise in your industry with understanding of your business can provide valuable insights, mentorship, and guidance, which can be instrumental in overcoming challenges and making strategic decisions.
Investors with a strong network can open doors to potential customers, partners, and other investors. Their connections can help your startup expand its reach and accelerate growth.
Managing the investors
You think programming software is tough, try communicating with investors to get their attention. Invest time in what to speak and what not to speak while pitching. Goal of most questions you ask an investor should be to understand what resonates with investors, what they are concerned about and what they would do in your shoes.
Understanding the investors is the most important part of effective investor relations.
Founders often feel investors are sufficiently updated, yet, only 50% of investors feel their current and potential invested startups keep them sufficiently updated.
Founders should provide investors with the information they want and need, even during periods of slower progress. Transparency and consistent updates on product roadmap, key performance indicators (KPIs), financials, significant initiatives, new customers and new hires foster substantive conversations and build trust. The investor updates should include highlights of achievements since the last update, current challenges, and how the company is addressing them. It is also important to make specific requests for investor assistance, express gratitude for previous support, and share customer stories that humanize the updates. Investees should be clear, concise and consistent.
Key Metrics for Investor Relations:
Key metrics play a crucial role in this process, as they provide a quantitative and objective way to assess the company's financial health, operational efficiency, and growth potential. When it comes to tracking startup performance, various metrics are relevant. It is important that the startup decides 5-6 metrics most relevant for their business and consistently reports on them. Some key metrics to be considered include:
A few key metrics important for all investors from all their invested startups are Cash balance, burn and runway. These define the survival for the startup. These also help in planning the next fundraise for the startup.
This tells about the operational efficiency of a startup. Unit economics, Revenue (Actual vs Projected), Percentage revenue growth (MoM), average revenue per user (ARPU), Monthly recurring revenue (MRR), annual recurring revenue (ARR), cash flow from operating activities and Return on Ad spend (ROAS)
Profitability metrics tells an investor when the startup will start generating return on their investment. These include gross margin, contribution margins and EBIDTA margin
Number of users: actual vs forecasted, New customers acquired, churn rate, Monthly active users (MAU), Customer lifetime value (LTV), Customer acquisition cost (CAC), Net promoter score and Concentration risk (revenue from largest customer as a percentage of total revenue)
Frequency of communication
The frequency of updates may vary based on the stage of the company. At 100X.VC, we typically request monthly updates for pre-seed companies and quarterly updates for ongoing communication with our other portfolio founders. We believe that regular updates at these intervals allow for effective tracking of progress and maintaining a strong partnership with our invested companies.
At 100X.VC, we emphasize the importance of regular investor updates as a means to foster trust, facilitate meaningful communication, and support the growth of our portfolio companies. Investors only succeed when their portfolio companies do well. Investors feel a sense of responsibility towards the founders and founder updates are a criterion for the investors to confirm that their capital is in good hands.