If you've successfully landed investors for your business, you know that keeping them happy is a key part of your job. Yet sometimes that's easier said than done. Everything from personality conflicts to deep-seated differences of opinion about how to fix problems can sour your relationships.
Good communications practices and demonstrating respect for your backers' opinions can help maintain the peace, even when you disagree or your business faces a setback. "It's all about stakeholder management," says Alexander Lowry, a professor of finance at Gordon College in Wenham, Massachusetts, and an advisory board member for 202works, a platform for finding public policy experts that's based in Washington, D.C. So how exactly can you keep your money people happy?
Choose your investors wisely.
If you can, be picky--and look for backers who are aligned with your long-term vision. "We were selective," says Ryan Mughal, the co-founder and CEO of Optio Surgical, a Lakewood, Colorado-based maker of software designed to track medical devices and reduce hospital surgical costs. Mughal says he and his partners turned down investments by people who wouldn't commit to the founders' desired valuation or exit strategy: "It's important to be on the same page as your investors about where you're taking the company."
Mughal also recommends looking for backers with different skill sets. "We wanted a well-rounded mix," he says. "We have physicians, software executives, and some finance folks as well." That sort of diversity of experience may help reduce tensions and long-term stress at investor-funded startups, according to a study published in the journal Entrepreneurship Theory and Practice in 2014.
Stay in touch.
Regular updates to your investors are a must. Theo Lee, co-founder and CEO of KPop Foods, an L.A. startup that makes Korean sauces and snacks, says he learned this lesson after he got busy and didn't send out his monthly investor email. Two weeks later, an angel investor reached out, worried that the radio silence meant trouble. "It was interesting to me, because it wasn't like he'd been immediately emailing, texting, or calling after receiving previous updates," Lee recalls. "That's when I knew how important updates are."
How you communicate is also key. KJ Miller, the co-founder and CEO of Mented Cosmetics, a New York City-based beauty line for women of color, says she used to send out short monthly updates, thinking people didn't want to read lengthy communiqués. But she would often get back questions from investors, asking for information she could have easily provided up front. So she switched to bulleted emails, which would provide more information but be easier to digest. Her investors "actually do love data," Miller laughs. "The more I can give them, the happier they are. But doing it in a bulleted manner keeps it from seeming like they need to read a novel every time I email them."
Don't be an ostrich. Investors will find out bad news; trying to hide it will only upset them. No one wants to learn from an outside source that your business is about to burn through its accumulated funds, says Vanessa Kruze, CEO of Kruze Consulting, a San Francisco-based firm that works with seed- and venture capital-funded startups. "It destroys the investors' trust in you and your team," she states.
Miller says when she needs to communicate something like a missed goal, she does two things. First, she makes sure to put it in some context. Second, she quickly follows up with more positive information. "This way, our investors know we're still moving toward our target," she explains.
Value your investors.
They've invested in your company because they want it to do well--not because they're secretly hoping you fail. So make your investors feel needed for more than their money, and if they offer some specific expertise, take them up on it.
Lee says he always makes sure to add a line to his monthly notes to investors describing where the company is currently focusing its efforts and asking them to reach out with advice and possible connections. As a result, he's received feedback and introductions that have improved KPop's bottom line, at the same time showing his investors that he values their counsel. "Many investors feel good," he says, "if they are able to contribute value and help an entrepreneur out."