Starting a business is hard and the road to success has its ups and downs. Getting support from your network is a key aspect of success and the most committed to your success are of course, your shareholders. Providing regular, insightful and honest shareholder updates is vital to ensure you maintain a good working relationship.
Being transparent with shareholders from the outset with both positive and negative news helps to build a rapport and also prevents unexpected surprises, therefore reducing tension and mistrust.
The biggest incentive to keeping your shareholders informed is to smooth the process for any future financing requirements. Your shareholders are not to be feared and an honest dialogue will justify your use of funds for future financing. If your business has experienced delays in projected revenues, or delays in the launch of your product, it is always better to inform your shareholders of why and of course let them know how you plan to avoid such delays going forward.
Most private investors are those who have experienced success as a business owner or as a senior person in a large firm. Individual investors have usually seen it all when it comes to growing a company and can provide an understanding and experienced sounding board as you navigate the growth of your business. Do not be shy in asking your shareholders their advice and take any questions or criticisms from them with the utmost respect, responding as soon as you can.
Not regularly updating shareholders can have a negative impact when it comes to subsequent funding rounds since, they are not as familiar with the progress of the business and may not have been aware of specific events which have brought funding rounds forward, therefore, increasing the amount of distrust.
Writing updates regularly also helps you to reflect on the progress of the company on a macro level and track this progress over the life of the business.
As a general guide it is good practice to send shareholder updates quarterly and additional updates as and when required. For instance, if an update contains a significant event a follow up update should be sent with the outcome of this event.
All forms of communication are valuable.
Shareholder communication does not have to be a formal letter to the shareholders. Reserve these for quarterly release. The key to keeping your relationship with your cap table strong, ensure constant communication in a range of forms. Add your investors to your monthly marketing newsletter, pickup the phone or text shareholders who are so inclined. Get to know their background and their interests, it may come in useful and will give your investor a sense of belonging.
The Three C’s
When communicating with your shareholders remember that they are investing in you as much as the idea. They want to see an entrepreneur who is on top of the detail, is organised and can provide a clear, concise and consistent message (the three C’s!).
Ensure you provide the most important numbers first, profitability/cash burn, customer engagement, capital expenditure etc. Also ensure to articulate the milestones achieved against these numbers. Always provide a rich update, including information on other facets of the business, this would include new hires, new strategies, any PR they may have missed etc.
We recommend making a template for these reports, so as to ensure efficency in communication and of course, remove the excuse of producing one!
A lack of communication is an easy way to place doubt in your investors mind, even if it’s good news.
What if it’s bad news?
Contact your investors anyway.
Keeping your investors out of the loop is the most fool-proof way to threaten your chances of future funding. If you withhold information, neglect to inform of important strategy changes or ignore them altogether until you have a cash call, your investors will not be easy to deal with. This will result in further questions that ironically, will take more of your time that if you had kept them continuously informed.
As mentioned above, your investors have been here before, they have experienced failure and success and they are experienced with strategy changes. Seek their counsel and be prepared for the difficult conversation, it’s better than running out of funding.