Dear First Time Entrepreneurs,
Investors hate surprises, both good and bad, so communication is key.
The benefit of keeping your investors in the loop is far greater than the opportunity cost of not doing so. If it resembles a chore, you have the wrong investors.
If you don’t engage your investors and get more than money from them, you sold yourself short. In other words: you got jipped.
Keeping your investors engaged is important because it should help grow your business, make the re-investment decision quicker and easier, get you introductions to other investors, and it may eventually help you sell your company, among other reasons.
I haven’t met an investor who is not willing to help, especially in the angel/seed community. Many of them do so in order to be involved and see returns. The issue we seem to run into is the entrepreneurs don’t ask for help. In my experience this is for a few reasons:
1) They are afraid to
2) They don’t know how to
3) They are too busy to
4) They think it will be distracting
So here are some tips on engaging your investors in a way that is beneficial and not hurtful to your company.
1) Keep them Updated: Send out regular e-mail updates with what’s going on. These should briefly cover all aspects of the business (sales, marketing, operations, product development, etc.). These letters should also have an “ask.” The companies that I have seen do this best generally come through programs like TechStars, where this is ingrained in them.
2) Give Your Investors Direction and Things to Do: Ask your investors to do things for you and be specific. For example, don’t just ask them to make intros to leads, give them a list of leads you are working on and ask them who they know and how they can help.
3) Be Picky: Not every investor can be involved in helping you in every aspect of the business, nor should they (for instance, we tend to be very product-focused and are called on in that area). Know what your investors are best at, leverage that, and be open about this to them.
4) Big Important Scary Decisions: When it comes to making important decisions (i.e. raising more money, selling the company, shutting down, large pivots,) your goal should be to get as much feedback as possible, synthesize it and then get the buy-in of each investor ahead of the “official” communication or sign-off. This can be accomplished by group e-mails, group calls and/or individual calls. My advice is to do a few of these things. Start with a casual e-mail to the investors letting them know what’s going on (see example below), then do one-on-one calls, and then do a group call if everyone isn’t on the same page. Once you have sent the official e-mail, the document reviews will all just be a formality.
5) You should manage the type and level of help from your investors. Don’t let your investors get to into the weeds and wind up managing you. It will only frustrate you, your team, and your other investors. We invest and believe in your abilities and give you enough rope. If you hang yourself with that rope, it was a risk we took.
A Few Disclaimers:
1. Remember you are the leader and there will be times that not everyone agrees. It is your responsibility to make the best possible decision based on sound reason, analysis, and input. If this is done, people should not fault you if you’re wrong.
2. Make sure you manage the process right, and solicit feedback from the right investors in the right areas. Too Many Cooks Spoil the Broth.
3. This post is targeted to companies that have raised seed rounds from many investors. Some of the process changes as your investor group grows and matures.
As you know, we have been in fundraising mode and we have received a term sheet. The broad strokes of the offer are $4m preferred on a $12m pre money valuation, a 1x participating preferred and the expansion of the board to include members for the lead, XYZ Venture Firm.
I’d like to set up some time for us to speak within the next few days to get your thoughts on the terms, ask for your advice on how to proceed, and discuss any questions you may have. I have attached the term sheet for your review, obviously to be kept confidential. Send me some times that work for you to talk.
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