Investor Management: What Information Should Founders Share With Their Investors?
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Read parts 1 & 2 of this interview: The Entrepreneurial Journey of AngelLoop CEO Igor Feerer & How the Problem of Your Current Business Can Lead To Your Next Business
David Smooke: How much information and what information do you think founders should be sharing with investors? And what pieces of information should they be sharing with investors that they’re generally not?
Igor Feerer: So, on the qualitative side, I would say founders share a lot of good news. I think good news is great and you should definitely share good news but don’t overcompensate. You definitely have challenges you’re working on and when you share a bunch of good news with investors, they find that they’re not really needed.
One of the things founders are not doing properly is telling their investors about the challenges that they’re undertaking. This actually engages the investor. It makes them actively involved with your company and it makes them think about ways they can help. You got to see these people as evangelists for your company.
And I definitely had a lot of investors in my prior ventures, I’ll probably come to a similar number at AngelLoop, but I’m starting to see a lot of companies that have seed rounds maybe raise a million bucks and onboard 60 investors of their own. And don’t take these people for granted, they’re connected, they got a big network. So, let them know the challenges you are working with and watch how much love and help you get.
On the quantitative side, things like revenue, forecast, expenses, expense forecast, cash in, cash out, all of this actually gets you a better understanding of how you’re performing against your plan.
So, at the beginning of the year, you put together a plan, and then each month you come in, drop a few data points, we will show you what your difference looks like but we will also tally up all of your burn rate when you’re running out of money. These things are important to transact with investors because:
- (1) they want to see that you are performing, and if you’re not performing, how can they help?
- but also (2) they want to know that you have enough money in the bank, to give you the right amount of time to build out a team, and when you need to go and start finding investors.
The general rule of thumb is at least four to six months of a reserves available on your bank account, especially when you’re going to go off and raise a new round. But the big opportunity here is showing your investors that you’re going to running out of money soon, and the reason I say that is because it actually triggers this feeling in them of wanting to help. So, I see it time and time again when companies come to that six month mark or running out of money, they tend to encourage a lot more of their investors to actively look for deals, or look for other investors for them, or come into the round as the follow in.
And have you seen a lot of follow on activity from your customer?
Yeah, definitely. Companies that are active, I would say, come into the platform once a month, update their figures, maybe answer a few messages from their investors. They definitely do a really good deed in building out their relationship. So, not only do your investors start to trust you more as a CEO, but they see how you’re performing, you’re pretty much capturing a lot of their attention, especially because it’s just a very noisy world. So, when they’re focused in on how you’re doing, you’re giving them an opportunity to want to follow in. So, I’ve been seeing a lot more company founders close follow on deals with the current investor board, but also these investors are helping these founders network within their own communities and raise more money for the next round.
That’s great to hear… when you think about how to build, are you building more for the investor or for the entrepreneur? Or is it something where you’re building for both and kind of align your team to understand that they need to create a better experience for both?
Sure. Yeah, we definitely ask founders what it is that they’re looking for. We do have a pretty good plan or at least a roadmap for them to use to succeed especially with bettering the relationships.
What I would say is that investors, they’re even more at a loss than the founders. If you think about it, if you’re an investor and you have a portfolio in 10 companies, you’re getting emails sporadically, you may have lost touch with some of them. Then when you start to look at accelerators and the VCs, they need this information in order to please their other investors where or their LPs.
So, we’re actually thinking about both sides of the marketplace. Investors obviously have their own needs, founders have theirs, so it’s just a matter of how do you reconcile that, and really building a collaborative environment so that both sides are happy with the tools they have — and can use these tools to help better their relationship.
Have there ever been situations in your career where you over or under shared important information with investors?
Well, in a lot of cases you kind of have to do that. Investors they come in different flavors, some are accelerators, some are angels, some are VCs, and they all require different variants of information. So, at AngelLoop, we built out a permission settings to allow the founder user to decide who sees what. So, it actually makes it easier, but you know, to answer your question directly: yes there’s certain information that I was asked to not share with earlier angels just because the VC at the time thought it was going to make a lot more noise. However, I still very much ask them for other things.
So, asking for help, asking for X, Y, and Z, and they deliver, but I don’t think they knew I was omitting information. And then on the other side of things, you can definitely be a little more talkative than you should be. So, relaying information to investors about a bunch of problems that you’re having that might kind of be counter intuitive, you definitely want to discuss challenges, but you don’t want to sound like everything’s a problem too, so you kind of got to figure out a way to be more persuasive with your outgoing messages as well as just be thorough, but also think of the strategic side of things.
Yeah, it’s an interesting market in terms of adding more transparency… but there is a large communication gap between founders and investors, and at the same time, there is that fear of over-communicating. So, what’s your general advice to entrepreneurs about who are concerned with oversharing information to investors?
I mean, it’s actually basic. Just get to know who your investors are. Once you kind of get a good understanding of who they are you’ll know what information they need to hear in order to help you. So, just again, get to know who they are.
Understand the kind of things they can help you with and understand the approach you’re going to take with them. Once you establish that kind of relationship, you’ll know what to share, what not to share.
I do prefer transparency just because it helps to better me as a CEO, especially, when things aren’t going well, I get a whole bunch of feedback from my investors, overwhelming good feedback, but then you know, once in a while you’ll get a kick in the ass and that actually might even work much better for you as a CEO going forward.
So, I would say transparency is key, but again, just get to know your investors, find out what it is or what you can share with them, what you shouldn’t. I mean, you’re a grown up now, you own a business, and it’s important for you to understand how to play that role.
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