How do we find the investments for growth? Who are the right partners to invest at the stage of business we are in? What’s the length of investment needed. These are a few questions which need to be answered by all entrepreneurs in their entrepreneurial journey.
Organizations with great growth stories have managed to bring in a strong set of investors where they have been growing along with the investors as the business kept on growing.
Growth investing is a style of investment strategy focused on capital appreciation. Those who follow this style, known as growth investors. Investor relations are dependent on stages of business, impact of investors on decision-making process, strength and conviction of the Management to take decisions and drive actions.
However, irrespective of the stage of evolution and maturity of the organization it is important to always value and keep investors engaged. This helps the business to gain maximum mileage of their experience and network.
Investors – What do they want?
Investors look at investing in opportunities with high potential. The expectation of investing is more than just getting their money back when they invest in an enterprise. They may be looking for a higher return on their investment than they can get on the stock market. There could be multiple reasons to invest. Some of them would have been existing successful businessmen and are looking to add experience along with funding to create something new.
The investors also look at the pedigree, experience and capability of the team. A good team helps to make their decision quicker as they know that the business is in the hands of capable people who can lead the business to the next level. For most businesses, a complete management team will include skilled, knowledgeable people who know about marketing and selling products, manufacturing, managing people, and accounting.
A very important aspect which is a non-negotiable for the investors is the Business Plan: Investors want to see a business plan that’s both convincing and complete. They want to see that you’ve developed a vision for your company and that you’ve given thought to the details of how to get there. They want to see things such as financial projections, detailed marketing plans, and specifics about your market.
This will then be followed by a business structure for investment: and a formal shareholder’s agreement giving the background for the investment and the return. The potential of the idea is critical for investors along with a viable exit strategy: Investors expect to see an exit strategy.
How do we see the Investor relations changing with time
Like in the case of Individuals, the Corporate Investor Lifecycle sees investors going through three basic stages in their investment.
Start Stage: Would be the accumulation stage
Middle Stage: Would be the consolidation stage
Last Stage: Would be exit and profits
While the length and complexity of each stage and the risk appetite of investors will define the time frame for investment, every business needs to keep in mind that they will need to manage the investors differently through each of these phases as the requirement both emotionally and financially will differ for the investors depending on the phase of investment they perceive themselves to be in.
Working with investors on starting up
Many companies do not have a formal investor relations process in place until they’re actively raising money. But the real work in nurturing your investors takes place before and after you accept capital. Staying top-of-mind with prospective investors to ensure all opportunities get exposure and none slip through the cracks.
A well-prepared investor relationship strategy forms the foundation of a successful business development plan. Companies should be nimble at this stage, adapt technology and network, as investors today tend to invest with companies that respond rapidly to changes in business models and adapt technology.
Working with Investors while growing
Some of the best practices which need to be followed at this stage can be summarised as under:
- Create a calendar for providing information and sticking with it, i.e. whether you choose to update your investors monthly, quarterly, yearly.
- Be relevant and responsive: Keeping information relevant the number one component to maintaining healthy relationships is communicating and making sure your investors have up-to-date information. Avoid over communication: Send updates that pertain to an investor’s specific portfolio or interest.
- Transparency and consistency: Investors appreciate transparency so don’t be afraid to share updates across both ends of the success spectrum.
- Visibility: In addition to a consistent timeline, it’s important to stay visible and available to your investors. If you’ve reported a mixed quarter, maintain a dialog with those investors who want to be reassured by the senior management that you are on top of managing the company.
Working with Investors while Exiting
Investors may decide to sell their investment and exit a company.
Alternatively, the company & its management can buy the investor out. The most critical aspect in an exit is the valuation, the exit value of a company must be mutually agreed between all parties, and will depend on the type of operation, the number of shares sold, the original valuation of the company.
The group as a whole should be aligned so that all are aware that the decisions taken are consistent and in the best interest of the valuation and exit.
Given the importance of investors to the business, they are both friends as well as co-owners and as such need to be treated with a high degree of respect, professionalism and transparency. If the business owners appreciate the lifecycle of the investors and based on the phase plan their investor relationship and management strategy they would have a
great Investor Relationship going for them which eventually would be seen in both the company’s performances and valuations.
Disclaimer: The views expressed are solely of the author and CPO Innovation does not necessarily subscribe to it. CPO Innovation shall not be responsible for any damage caused to any person/organization directly or indirectly.