Avoiding Costly Mistakes in Investor Relations
Raising funding is no easy feat, especially for first-time founders. You need a solid business plan, traction to demonstrate market fit, and the skills to pitch effectively. Yet founders often trip up when it comes to investor relations – the ongoing communication and relationship building after that first check clears.
“We’ve seen companies make mistakes managing investors that have cost them dearly down the line,” said Michael Mohammadi, CEO and co-founder of StormX, an investor relations platform. I sat down with Mohammadi and his co-founder Eduardo Fonnegra to get their tips on avoiding common investor relation pitfalls.
Don’t Get Caught Up in Short-Term Fundraising
It’s tempting to focus on immediate fundraising needs without considering the long-term ramifications of taking on certain investors. “A lot of founders get caught up in just meeting the first couple investors who can give them money,” said Mohammadi. However, not all money is created equal.
The wrong investor partner can hurt you down the road, especially if their priorities end up misaligned with the direction you want to take the company. Make sure to evaluate investors thoroughly not just based on the size of their check, but whether they’ll be able to provide strategic advice and introductions that support your vision. With the right investor relationships, fundraising becomes a byproduct of building something great.
This tendency to prioritize short-term gains over long-term success is an example of the cognitive bias known as loss aversion. Founders are so anxious to avoid the pain of missing payroll or running out of cash in the near-term that they make hasty decisions on investors that cost them later. Being aware of this bias can help founders take a balanced perspective.
Don’t Neglect Ongoing Investor Relations
You’ve finally gotten that first investment. Time to get back to product development, right? Not so fast. Investor relations require ongoing nurturing, not just during capital raises.
“A lot of startup founders think that the only way investors will respond favorably is if they provide their best pitch on first contact,” said Mohammadi. Unfortunately, this Shark Tank-style approach often backfires. Don’t think of investor communication as a one-and-done sales job. The goal is to establish authentic relationships based on mutual understanding.
Schedule regular investor updates through calls and newsletters. Seek investor advice to strengthen your business model. And involve them in important strategic decisions as valued partners. By keeping your investors engaged and informed, you build crucial trust and support for when you eventually need to raise capital again.
Here, founders can fall prey to confirmation bias – a cognitive bias that involves seeking out information that validates their existing perspective while ignoring contradictory evidence. After landing an initial investment, founders feel confirmed that their model and pitch works. Yet neglecting ongoing investor relations undermines long-term success. Being cognizant of this bias is key.
Hone Your Messaging for Changing Markets
Markets are fickle beasts. Economic fluctuations – whether upswings or downturns – impact the types of companies investors are willing to fund. During periods of uncertainty, it’s especially critical to tailor your messaging and positioning.
“When markets get rough, founders need to reevaluate their business model and value proposition,” said Mohammadi. Demonstrate how you’re building an enduring company, not just riding a trend. Highlight how your product solves real customer pain points.
While some investors get skittish in downturns, money continues flowing into promising startups across sectors. “VCs are always looking to invest in the next revolutionary, innovative project,” said Fonnegra. Rather than following perceived “hot” areas, stick to your vision. With clear and targeted messaging, you can get funding even in tricky times.
Fix Operational Weak Spots Before Fundraising
The strength of your operations will directly impact fundraising success. “We want to see companies have all their positioning in order before connecting them with investors,” said Mohammadi.
Yet some founders rush into pitching before getting their house in order. Have your pitch deck, financials, KPI dashboards, and other materials ready for investor scrutiny. Build up marketing and sales to demonstrate traction.
Work on any weak spots in your team roster or business processes, and show scalability. The more you button up operations on the frontend, the easier fundraising becomes on the backend. Investors want to put money into startups primed for growth.
Don’t Just Focus on Fundraising
At the end of the day, fundraising is not the end goal. It’s a means to grow your business. “Too many founders focus on pitching, pitching, pitching. They need to spend more time on actual relationship building,” Mohammadi emphasized.
Rather than getting fixated on closes, think about how you can forge durable relationships with investors. Successful investor relations depend on cultivating a network that supports you during good times and bad.
Even if an investor passes, stay in touch. They may connect you with others or come back around in the future. With strong relationships, fundraising takes care of itself.
Pick Investors Who Truly Understand You
Not all investors are created equal. Beyond just capital, you want backers who grasp your vision and can provide strategic guidance. Vet potential investors thoroughly, just as they’ll be vetting you. Look for overlaps in values, priorities, and working styles. Seek warm introductions from other founders and advisors to find the best fits.
Taking the time to choose compatible investors reduces friction down the line. With investors who share your mindset and interests, you don’t have to worry about pushing your company in directions that don’t feel right.
Don’t Underestimate the Power of Community
Investor relations are undergoing a shift from a VC-centric model to community-driven funding. “I think crowdfunding and blockchain will revolutionize startup investing,” said Mohammadi.
Platforms like Republic and Wefunder make it easier than ever for founders to connect directly with customers, fans and smaller-dollar investors rather than relying solely on institutional capital.
Build an engaged community that wants to literally invest in your success. Share progress transparently, solicit input, and reward loyalty. A grassroots investor base will provide funding as well as invaluable feedback to hone your product-market fit.
Embrace Investor Relations as an Ongoing Journey
The companies with the strongest investor ties don’t view fundraising as a one-off event. They embed communication with investors as an integral ongoing component of operations. Making investor relations a habit avoids scrambling to reactively raise capital and build rapport when your back is against the wall.
Successful investor relationships are earned over time through consistent outreach and alignment on values. Maintain these connections during funding downtimes so they’re primed to move when it counts. With disciplined nurturing of your investor network, you’ll be fundraising ready no matter what the markets throw at you.
Conclusion
The tips above, synthesized from my in-depth conversation with StormX’s founders, provide actionable best practices to build investor relationships that fuel sustainable startup success. Avoiding missteps like focusing on short-term fundraising, neglecting ongoing communication, and not addressing operational weaknesses beforehand will pay dividends as your company matures. Investor relations are challenging but immensely rewarding when done right. With commitment and savvy relationship skills, you can secure the backing to turn your vision into reality.
Key Take-Away
Effective investor relations are crucial for long-term startup success, involving thorough investor vetting, ongoing communication, and strong community engagement. Click To TweetImage credit: cottonbro studio/pexels
Dr. Gleb Tsipursky was lauded as “Office Whisperer” and “Hybrid Expert” by The New York Times for helping leaders use hybrid work to improve retention and productivity while cutting costs. He serves as the CEO of the boutique future-of-work consultancy Disaster Avoidance Experts. Dr. Gleb wrote the first book on returning to the office and leading hybrid teams after the pandemic, his best-seller Returning to the Office and Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage (Intentional Insights, 2021). He authored seven books in total, and is best know for his global bestseller, Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters (Career Press, 2019). His cutting-edge thought leadership was featured in over 650 articles and 550 interviews in Harvard Business Review, Forbes, Inc. Magazine, USA Today, CBS News, Fox News, Time, Business Insider, Fortune, and elsewhere. His writing was translated into Chinese, Korean, German, Russian, Polish, Spanish, French, and other languages. His expertise comes from over 20 years of consulting, coaching, and speaking and training for Fortune 500 companies from Aflac to Xerox. It also comes from over 15 years in academia as a behavioral scientist, with 8 years as a lecturer at UNC-Chapel Hill and 7 years as a professor at Ohio State. A proud Ukrainian American, Dr. Gleb lives in Columbus, Ohio. In his free time, he makes sure to spend abundant quality time with his wife to avoid his personal life turning into a disaster. Contact him at Gleb[at]DisasterAvoidanceExperts[dot]com, follow him on LinkedIn @dr-gleb-tsipursky, Twitter @gleb_tsipursky, Instagram @dr_gleb_tsipursky, Facebook @DrGlebTsipursky, Medium @dr_gleb_tsipursky, YouTube, and RSS, and get a free copy of the Assessment on Dangerous Judgment Errors in the Workplace by signing up for the free Wise Decision Maker Course at https://disasteravoidanceexperts.com/newsletter/.
