By Scott Haughton, COO, Envestors.
In today’s world, the importance of investor relations cannot be overstated – in Brazil, Egypt and Bulgaria, companies are mandated by law to have an IR function – and it is no coincidence that the most successful, global giants lead the field in IR ‘best practice’ awards consistently: the 2018 winner – as voted for by the IR Society – was Easyjet. Morrisons and Tesco were also shortlisted.
Investors are the lifeblood of many start-ups, so look after them by maintaining good investor relations. Here’s why:
Seeking follow-on investment
Companies tend to need cash injections in multiple funding rounds, before they reach maturity. If an investor had enough faith in your start-up, the probability is they will continue to support you as you grow. However, ask any business angel for their biggest gripe and they’ll tell you that it’s being treated as if they’re an ATM. ‘The thing that companies forget’, says experienced business angel Michael Byrne, ‘is that if we only ever see them with the begging bowl out, the chances of us participating in follow-on rounds decreases significantly. Likewise, the chances of us investing in a follow-on company (if the first company fails) decreases to zero if there has been no communication’.
Veteran non-exec director Penny Avis agrees. ‘I am much more likely to invest in further rounds if I can see that management really understand how to keep their shareholders up to date. Short, timely, no flannel reporting is what I am looking for’.
The investment community is pretty small
If you’ve neglected your original stakeholders and they’re now reticent to fund your next round, you’ll need new investors. However, the investment community is – like any society – built on relationships and reputation. If you’ve treated them badly, they’re going to talk about it; good IR is all about honest communication and it’s crucial to keep these ideals in mind to prevent you from damaging your brand and integrity.
It reflects on your brand
Many, investors, particularly ‘crowd’ investors, invest in companies because they identify with the brand and its ideology; they are not just investing, they are joining a brand that they care about. These kinds of investors are also your biggest cheerleaders. If you don’t keep them informed, they will quickly start to feel like they don’t matter to you and, day by day, your biggest champions will fall out of love with you and your brand.
They’ll be the first to support you
A 2018 British Business Bank survey stated that 39% of angels invest in a start-up to contribute their knowledge and experience in that sector. Tony Goodwin, CEO of recruitment giant Antal International, says ‘I tend to only invest in recruitment start-ups, as it’s my sector and I really enjoy the mentoring side. Business is about life, not just money – it’s almost like a marriage’. If your business struggles, don’t hide it from them; chances are, they’ll be able to help.
Your business is prepared for potential buyer or exit
When the time comes to exit, the due diligence conducted by a potential buyer will be incredibly thorough. The practice of providing regular updates to investors – via an IR tool – will enable you to be properly prepared. With everything about your business – from the ugly reports to the beautiful sales results – in one place, the due diligence process will be quicker and considerably less stressful.
These are the five ‘whys’, here are the three ‘hows’:
Digital is the way to go
The easiest, quickest and most efficient way to look after your investors is to go digital. Envestry for Scale-ups, for example, provides everything you need to keep your investors content, including a secure data room and a Q&A facility. If you decide to go it alone, make sure you have a dedicated IR section on your website – this can be password protected – to have all the relevant information in one place makes it easier for them and shows you value and respect their time.
Make your intentions and beliefs clear
Steven M Bragg, author of the Investor Relations Guidebook, says ‘The worst way to release bad news is to bury it in the footnotes, in the hope that no one will see it. A diligent investor always reads them and won’t appreciate having to dig deep to uncover potentially critical information.’
Fintech app Revolut, for example, has facedoff accusations of fabricating data, money laundering and most recently misplacing a £70,000 money transfer. Pity their investors, however, as they had to read about it in the press. Had they regularly and scrupulously shared everything with them, they might find themselves facing a less uncertain future. Quite simply, investors need regular updates.
It’s easy to make the Shareholder’s Report – particularly if it’s not as healthy as you’d like – less of a blow if you add a personal touch: if you make t shirts, send them a t shirt. If you’re a tech company, give them a discount or advance notice on new developments – anything to keep them happy to be on your team. Chocolate company Ombar often sends their investors a few bars alongside their Shareholders’ Report – it’s a small gesture that can make a big difference.
Reach out to your investors
Good IR enables your investors to help when things are tough – the same goes for the good news: communication enables them to identify possible growth opportunities, partnerships or new business angles. Whether it’s angels or crowdfunders – if they’ve given you money, they care and it’s your duty – as part owners of your business – to keep the dialogue ongoing and mutual, so that when you need advice, an opinion, an introduction to new investors or simply to help promote a new product, you just have to ask.
By understanding the five whys, and taking action on the three hows, you will build a great relationship with your investors and keep them on your side and rooting for you through the tough times and the good times.
About the Author
Scott Haughton is COO of Envestors. Envestors is a fintech company that connects investors and scale-up companies. With their fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year. They have raised £100m+ for over 200 companies through their own private investor network. Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China. www.envestors.co.uk