How to Keep Your Investors Happy Four tips on effective investor relations for startups

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.

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.