Best Practices for Building Strong Relationships with Investors

1. Establishing Initial Contact

New relationships require a focus on the fundamentals. For example, when making investment decisions in a newcomer, the investor will look at how the initial contact was made and how the discovery process was managed. This information will be used by the investor to make a decision on further engagement with the entrepreneurial team. Therefore, the first meeting with an investor is very important as the entrepreneur has only one chance to make a good first impression. The entrepreneur has a dual objective to achieve in the initial meeting. First, the investor has to be convinced of the value of the proposed business opportunity. At the same time, some evidence has to be shown about the personal qualities of the entrepreneur and the management team as the entrepreneur is also marketing himself and the team to the investor. Usually, the process of making and managing innovative investments can be seen as consisting of five main stages and the initial contact will lead to entry into the first stage. At the first stage, the assessment of the investment opportunity is self-oriented. This means that the investor is not as interested in learning about the essence and potential of the investment opportunity. Investors focus on deciding how they want the discovery process to be managed in the future. There will be big differences in terms of how entrepreneurs should relate to a new investor in comparison to an experienced investor, a technology transfer office, a corporate investor, a business angel, etc. Entrepreneurs and investors have to learn working with each other over time and basic requirements have to be fulfilled in order for that process to be managed efficiently and effectively. However, it is also a fact that not all innovative investment projects will reach the commercialization stage. The probability of project failure or success is largely dependent on the entrepreneurial decisions made throughout the business development process. As a result, setting a promising initial contact is vitally important for the prosperous development of the investment opportunity.

1.1. Researching Potential Investors

But for an entrepreneur, having many different options can actually be a hindrance than a help. Many start-ups find themselves struggling with choosing the right investor. Choosing the right investor can be harder than it seems. After all, start-ups depend a lot on the capital they receive and hence it is crucial to find an investor or a group of investors who not only have the right resources but also the same vision of success as you do for your company. A method widely used in the past but has slowly started to lose its effectiveness in recent years is the “power of proximity”, where start-ups only look at investors within local or reasonable travel distances. While it is satisfying knowing we have the support of someone close to home, technology and modern transport means that a cross-country investor is not that large an obstacle, and by only surveying the local investment community you could be greatly limiting your prospects. Now, it is certainly good to consider this method when looking for an investment, nothing can beat an investor who has a proven track record. For many investors, providing a one off cash injection and subsequent support is an attractive proposal. However, is it not always the case that these investors are also seeking a greater influence within the company? This is why a number of investor relationships take the form of “partner investors”, where instead of giving a small amount and some advice, larger investors can provide significant amounts of financial and industry based support. This surely lead to the opportunity for long term thinking on a long term scale and tailored guidance to help with the company’s unique targets. This in turns can provide a great advantage that will help secure long term success. Financial strength is not only the indicator for a reliable and successful investor, how they manage their own assets has to be taken into account. This is why choosing an investor with a proven track record is so important- their financial strategy has shown to be a success. It is important to consider not only the providers of finance; their partners also must be taken into account as the investor’s decision making is partly reliant on their associates. Different investors have different focuses in terms of what they wish themselves and the company as a whole to achieve. This is why a start-up should thoroughly research the investors that they have shortlisted to help ensure that not only will they be a good fit for the company’s growth and proactive targets, but also have the capability to provide assistance if the business starts to stagnate.

1.2. Crafting an Effective Introduction

After conducting thorough research, the next step is to create a compelling and effective introduction. The main purpose of the introduction is to engage the investors and to get them interested in the business. This will increase the chances of the investors asking questions about the business and the investment opportunity. However, drafting the introduction is not a simple task. It must be well written, straight to the point and attention grabbing. First and foremost, the introduction must start with a description of the investment opportunity. It is important to provide a brief overview of the business, the business model and the products or services it provides. This will help the investors to understand what they are investing in. For example, if the business is a manufacturer, the introduction can start with a description of the products it manufactures. At this stage, we do not have to go into great detail about the products or services. However, we should try to make the introduction specific to the business. This means avoiding ambiguity and jargon which investors might not be familiar with. But make sure not to oversimplify things; the investors are likely to have industry knowledge and they might be looking for something refreshing. Then the introduction must provide a background of the management team. This should include the experience and track record of the key personnel in the business. For example, if the business is carried on by a group of experienced professionals, the introduction should highlight their backgrounds and the key achievements in their careers. This will help to build credibility and trust. Last but not least, the introduction must end with the reasons why the opportunity is attractive and how it can generate good returns for the investors. This can be supported by the use of financial forecasts and the details of the market research. As for me, the best approach for drafting the content is to write a few drafts and revise them over time. Getting friends and family members to read the drafts can be a good way to collect feedback and to improve the content. Also, do online research about marketing strategies and keep an eye on the current market trends will definitely help. By continuously improving the introduction, it will not just benefit the investor pitching but possibly all sorts of promotion for the business. Balancing what attracts investors and what I am passionate about in the business is the key. This will not just grab the attention of the investors, but also keeps me motivated in the future running of the business.

1.3. Leveraging Networking Opportunities

While digital networking is effective, in-person networking should not be overlooked. Attending industry conferences, meetups, and investor events can provide valuable opportunities to make connections. When meeting potential investors in person, having a short and effective pitch prepared can be useful for making a strong impression. This should include details about the start-up, what it does, and what makes it unique. Elevator pitches should be concise, engaging, and give insight into the business, such as the problem it aims to solve. When delivering a pitch, it is important to remain open to feedback. Investors may give advice or suggestions, and showing a willingness to listen and learn can help form positive relationships. Following up with new contacts is essential. After an event or meeting, sending a short email to thank the person for their time will help to keep the line of communication open. Building a broad network is valuable for start-ups, and so meeting people in different sectors or at different events can also be beneficial. This approach increases the chances of making a connection with an investor who is a good fit for the business. Be selective about which events to attend. Time is valuable, and so forethought should go into which events will be most useful. Research events and consider which are best suited for the business, then set clear goals for those events. For example, the goal may be to make three strong connections rather than just to hand out as many business cards as possible.

2. Building Trust and Credibility

2.1. Delivering on Promises

2.2. Maintaining Transparency

2.3. Providing Regular Updates

3. Understanding Investor Needs and Objectives

3.1. Conducting Investor Surveys

3.2. Identifying Investor Preferences

3.3. Aligning Goals and Expectations

4. Effective Communication Strategies

4.1. Active Listening

4.2. Tailoring Messages to Investors

4.3. Utilizing Various Communication Channels

5. Building a Strong Team

5.1. Hiring Skilled Professionals

5.2. Fostering a Collaborative Environment

5.3. Encouraging Accountability and Responsibility

6. Providing Value to Investors

6.1. Offering Exclusive Opportunities

6.2. Providing Industry Insights and Analysis

6.3. Facilitating Networking among Investors

7. Managing Investor Expectations

7.1. Setting Realistic Goals

7.2. Educating Investors about Risks

7.3. Managing Expectations during Challenging Times

8. Resolving Conflicts and Issues

8.1. Addressing Investor Concerns Promptly

8.2. Seeking Win-Win Solutions

8.3. Engaging in Mediation or Arbitration if Necessary

9. Maintaining Long-Term Relationships

9.1. Celebrating Milestones and Achievements

9.2. Seeking Feedback and Suggestions

9.3. Continuously Improving Investor Experience