Much is written about how to raise money from business angels and venture capital firms. But once you’ve finally nailed that deal and got yourself some cash, most investors aren’t just going to sit back in silence while you spend it. Here’s how to keep your new backers onside.
Start off on the right foot
While you might be eager to make a deal as soon as possible, don’t accept cash from just anyone. Different investors have different expectations and you need to get a sense of what those are – and think about whether you can match them.
‘You always have to be straight with investors,’ says Aidan Rushby, CEO and founder of home renting start-up Movebubble, which has raised a total of £2.36m. ‘If you over-estimate what you can deliver it just gets harder and harder. As an entrepreneur your job is to manage expectations.’
Stay in touch
In most cases you’re not going to be speaking to your backers every day but it’s important to keep them in the loop on a regular basis. ‘I have a quarterly investors meeting,’ says Rushby. ‘I always do a presentation for about two hours, going through what we’re working on and what we’re going to be doing the following quarter.’
Depending on their level of involvement some investors will expect to be updated more regularly than that, even if it’s just in an emailed newsletter or monthly conference call. ‘We try to keep to keep them up to date with what’s going on with a monthly shareholder call,’ says Ed Molyneux, CEO of Freeagent, an accountancy software provider with more than £7m of backing. ‘We have a very comprehensive management pack that we send out that talks about our current objectives and how those are going.’
As an entrepreneur you won’t have access to the big investor relations teams used by listed companies so it’s a responsibility that will largely fall to you in the early days. In the later stages a finance director or general counsel (if you have one) should pitch in too.
Remember they’re not all the same
You’re likely to have a very different relationship with a venture capital firm than you would with a private angel investor who has backed you from the very early stages. ‘Partners in VC firms aren’t going to sit down and go through an operational plan on how to scale the company with me for two hours,’ says Peter Johnston, whose freelancer management start-up Lystable has raised more than $3.3m (£2.3m). ‘But an angel in London, 10 minutes from our office, will probably help us with that sort of stuff.’
Investors’ attitudes can vary by geography too. Lystable’s investors are a 50/50 split of Europeans and Americans. ‘They have very different approaches to growth,’ Johnston says. ‘In Europe it’s all about building profitable businesses. In the US it’s let’s grow as quickly as we can.’ So bear those differences in mind when you're communicating with them.
Investors certainly have a right to make themselves heard but don’t forget that you’re still the boss (assuming they haven’t bought a controlling stake, of course). ‘You don’t want to run a business based on what investors want, otherwise you’ll lose sight of what the big vision is, the big opportunity,’ says Rushby. ‘I personally had to make some pretty tough decisions and I knew it was going to be very difficult to...convince [investors] to go in a different direction.’
Ask for help
It’s easy to tell investors what they want to hear but you shouldn’t be afraid to ask for their input – whether it’s their thoughts on an idea you have or an introduction to a well-placed contact. ‘At this stage they’re there to help the company more than anything,’ says Dan Gandesha, founder of crowdfunding start-up Property Partner, which just closed a £12.9bn series b funding round. ‘Much of it is about candidly sharing the challenges we are facing and seeking their guidance on that.’
Investor relations might be seen as an expensive preoccupation that's mainly a concern for big listed companies. But in a small business it's still worth putting in the effort to keep your backers on side.