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By Asheesh Advani
While you're raising money for your business, it's easy
to forget what it'll take to keep your investors happy after
you have their money. How will they react if you don't meet
your financial projections? What happens if your business model
needs to change after you've sold them on your original idea?
Particularly during the startup stage, while your business is
unproven, it can be difficult to keep your investors satisfied with
your progress. And when you have more than one or two investors,
the task can be downright daunting. Here's the secret: keep in touch. You owe your investors
updates on your progress, and they can probably provide good advice
on occasion. Most importantly, if they don't hear from you,
they'll get worried. The best way to prevent worried and
nagging investors is to keep them well informed. This month's
column provides some tips for entrepreneurs who have raised money
from angel investors, friends, relatives and other private
individuals (see my previous column for advice on categorizing private investors) and now need to keep
those folks happy. 1. Share the good news. Be generous with good news. Mail
your investors press clippings, product announcements, customer
mailings, and a holiday card. Certainly don't forget to invite
them to your grand opening, to tour your new space, and even to
your holiday office party. Experienced investors will also expect
one or more of the following: - An annual business-update letter: This
letter should include milestones achieved, operating highlights,
summary of financial performance, and near-term objectives.
- Regular financial statements: Quarterly
statements are sufficient; more frequent statements may be
requested if things aren't going according to plan.
- Audited annual financial statements:
Although they can cost $5,000 and up, the expense can be justified
once you have 1-3 years of operating expenses that exceed $750,000
each year; plus, the credibility you gain with current and
potential investors is priceless.
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Most of these business documents can be shared by email or fax
to keep your costs and time down. But if you're feeling hassled
by distributing files individually and on a regular basis, consider
creating a password-protected investor relations page on your
website. 2. Don't hide the bad news. You have an obligation to
your investors to let them know what's going on with your
business, even if they're not going to like what they hear.
Ideally, you'll have a solution to your problem that you can
present at the same time. But if you don't, chances are your
investors will be able to help you come up with one. Remember, they
want the business to succeed almost as much as you do. 3. Manage expectations. If you have to make changes to
your business plan, believe me, you won't be the first. Many
entrepreneurs have had to lower sales forecasts, abandon a product
line, or switch marketing channels. Don't announce a big change
with finality. Provide indications of an impending change in
financial statements or your business-update letter. If you have an
investor particularly wedded to your business plan, call her up,
explain the changing circumstances, and suggest your solution. 4. Ask for advice. Like most folks, investors like to
feel needed. And you do need them. An investor who has been there
before can be an invaluable advisor as you grow your business and
try to navigate the many twists and bumps in the road.
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