How to Manage Relationships with Your Investors
If you’re thinking about raising equity capital for your company, you really need to be thinking about getting married to your investors. I’m Rick Williams. I sit on the board of technology companies, and I advise these leaders as they make decisions on their path to success and growth.
Startups and companies looking to grow must have equity capital. Finding the right investor for you and your company is like finding your partner for marriage: it can be very personal, and you’re in the relationship for the long term. Early stage companies get funded by the founders, friends and families, and sometimes suppliers and customers. Banks will not lend to startups and very early stage companies because there is not a history of revenues and profits, and banks are generally looking for assets for security and personal guarantees.
Translate Your Goals for the Company for Your Investors
If you need outside equity financing for the company, start with your goals for the company and your financial strategy for the company. Translate your plans and goals for the company into the financial needs for the company. Do you see that the company is a long-term growth investment for an investor coming on board? Is there an IPO in your plans? Identify the size and the timing of significant financing, the timing for liquidity, and when investors can get their money back.
Consider What Having Investors Means
If you’re bringing in investors, you are in fact selling some or all of the company. You’re taking on a board of directors, which you may not have had before, and certainly new board members who are going to have a significant say in how the company operates and what its plans are moving forward. Part of the relationship that you have to manage and evaluate is whether these investors are going to be ready and willing to bring in new funding in the future and whether they’re going to give you access to their networks and other resources beyond just the funding that they bring to the company.
Bringing in new investors depends on the form, but they will hold you accountable to regulatory control and legal review that you don’t have to do with funding from your friends, family and founding team. The valuations will not be set by yourself and your hopes and wishes. It will be set by what investors are willing to put into your business and expect to get from their ownership of the company through their investment.
Related: How Much Control Do Investors Have?
Attract the Right Type of Investor with an Investor Plan
There are many types of investors, each with their own criteria, interest, goals, and objectives. Some investors are only interested in companies within a certain revenue band. Others are only interested in companies that have achieved some level of EBITA, and they don’t want it to be higher or lower than that level. Other investors are only looking at companies in a certain phase of their life cycle. That could include their product introduction cycle, their growth and their movement from initial success to growth, or from growth to substantial growth across the U.S. or internationally.
With all of this in mind, you need to develop an investor plan, including which investors you are going to talk to. Only be talking to investors who would be interested in companies like yours with a profile like yours. There is no Match.com for finding investors for your company, but you will find by talking to your connections that there are some firms and individuals who can make introductions that are a match. If you think you have those connections, you should use them.
Attract the Right Investor by Assembling the Best Team Possible
You’ve got to make your company be as attractive as possible to the investors you’re going after. Assemble the best team you can get for legal, accounting, your board of directors, board of advisors, and your branding marketing team. Get the team that will make it clear that you can be a successful investment.
Related: How To Build A Winning Business Team
Develop a Pitch for Your Target Investors
Develop a short, clear profile–an elevator pitch for your company–and why it is a good match for those investors. Then, create a list of investors who are likely to be interested in the story you have to tell about your company and the opportunity it presents for those investors.
Reach out to Investors
When you’ve done all of this, it’s time to execute on your investor outreach to the types of investors that are going to be interested in your plan. What may not be obvious at first is that every investor has lots of “dating proposals” and each of these investors is really looking for a simple, quick reason to say no. They don’t want to waste their time talking to prospects who are not going to be a good partner for them in the long term. In the end, ask for the check, and if they say no ask if they have recommendations for other investors who might have an interest in your company.
Be Realistic About Your Company’s Value
Get real about the value of your company. Unrealistic expectations for the valuation will end up frustrating you and the investors, and you won’t get the support that you’re hoping for and that you need.
Related: Constructing Your Value Proposition
About Rick Williams
Corporate leader and advisor at the CEO & board level with broad experience as an executive, board member and management consultant. Industry experience includes med tech, financial services, real estate and high tech. From executive and board positions, has successfully lead strategic repositioning work in response to the evolving technology, financial and political/regulatory environment. Effective team builder and communicator with a record of bringing boards and senior leaders together.
Founding Partner of Newport Board Group – New England. National CEO & Board advisory firm. CEO/Founder of The Equity Company – award winning real estate development company. Spent ten years with Arthur D. Little, Inc., global management consulting firm, helping companies deal with the strategic impact of government regulation in the areas of chemicals, oil and gas, innovation, and process industries. Began career as a Senior Physicist with an expertise in photo/electro optical systems for space & defense applications.
Former Chairman of the Board of the Community Development Finance Corporation. CDFC (now Growth Capital Corp) is a quasi-public corporation that gives businesses access to capital in markets under served by traditional lenders. Chairman of the Board of Point Care Technology, Inc., leading provider of medical instruments for HIV-AIDS measurements in the developing world. President and Member of the Board of Governors of the Harvard Business School Association of Boston until 2013. Board Member of Amorphex Therapeutics – innovative drug delivery company. Board Member of Fairway Financial US – on line auction platform for 1st issue bonds & other commodities. Chair of Executive Committee for Directors Roundtable.
Harvard Business School and University of Pennsylvania (BA, Physics).