Communication and Fundraising
Keeping investors updated is an important part of fundraising.
Most start-ups are not consistently raising capital so the process can be filled with challenges and pitfalls. Finding the right balance of investor interactions is an important component of fundraising but is often not an area of focus, but may be a deciding factor for a successful funding.
Last year we spent a few weeks in discussion with an industrial focused start-up. The concept was patented and passed several trials so the company proceeded with raising a seed round to fund additional marketing and pilot testing.
A week after our last management call, the company stopped responding to investor questions and removed access to the due diligence data site. We expected the company may have entered a quiet period and were negotiating a buyout offer or a term sheet with a single large investor.
Instead of a successful buyout or funding, the team believed they had answered all the investor questions and just shifted their focus back to product development. We did eventually get a call with the founder but due to the lack of communication most investors had already decided to pass on the deal.
Why Communicate
Investors are similar to customers as they provide money to the company in exchange for a product (equity). Successful start-ups have an intense focus on building a sales pipeline, which tends to involve monthly updates with clients or prospects. A similar approach should be considered with investors as it helps build trust in the company and reduces fears that silence may signal bad news.
We also advise start-ups to build their investor network well before launching the first angel or seed round. Providing monthly updates maintains a level of excitement and demonstrates a track record of building a business. During a capital raise it may be helpful to provide weekly updates, usually just a few bullet points or updates on the funding. Regardless of the process, communication is a tool which tends to be ignored while raising capital.
Years ago FastCompany wrote an article discussing start-up communications. We have several companies following the idea of a monthly email to everyone in their network. These messages can take several forms from asking for help with a problem, discussing recent wins, or laying the groundwork for a capital raise.
Thank You
As I write about maintaining communication, I noticed our community of readers recently crossed into the triple digits so thank you!
Please continue to share this with your network as I am working on a few new ideas and formats.