Investor Relations for Startups
At Good Capital, we’ve spoken to 1000s of companies over the years. But those who send out regular business updates? Probably less than 100.
Most founders treat fundraising as a standalone event – you go out to the market when you need capital to take the business forward. But in reality, it’s more like enterprise sales – you need to be in touch with investors consistently so that you can quickly close your round whenever you fundraise.
Investor relations is your enterprise sales process. We’ve seen cases where the business is doing well but fundraising is still difficult, which I suspect has a lot to do with investors not having the kind of familiarity with the business.
I understand that IR is one of the easier things to deprioritise but let me explain why and how it can be one of the most low-effort but high-ROI practices.
Any investor sees 100s of companies in any given month. Naturally, it’s extremely difficult to recall any one of them over time. Managing the portfolio is hard as is so going beyond – next to impossible. However, when you send an email update each month without fail – investors start to recognize that. They build context on your business over time. And, when they see you deliver consistently – growing well, navigating challenges, that starts to translate into conviction and excitement. Sub-consciously, they become invested into your success.
However, the impact isn’t isolated. Investors talk to each other constantly to exchange notes on the market and the different companies they’ve spoken to. When you send them updates, they can talk about your performance in those conversations. That’s how you can stay top-of-mind for them. It’s a small world and news travels quickly. Investor confidence and market chatter – these things can help massively when you go out to formally raise.
Beyond fundraising, we’ve seen investor communication help founders with customer introductions and finding the right talent – two exceptionally important things, especially for early stage startups.
Investor Categories
Broadly, you can bucket all investors into three categories: existing investors, potential next round investors, and the larger ecosystem.
Existing Investors
Instead of treating Investor Relations as a separate exercise, think of it as an external accountability mechanism. The discipline of writing a monthly business update forces you to zoom out from daily firefighting, evaluate the performance, and think about the future. If done correctly, this can be extremely valuable internally as well to help you plan and prioritise things.
Among your existing investors, you have your lead investors (generally institutions that have a larger ownership), and other investors (smaller funds and angel investors).
With your lead investor, the standard way to manage your relationships is to do regular syncs. At an early stage, it makes sense to do these calls once in 4-6 weeks, and as the company matures, these can be transitioned to once a quarter. You can do these online but good to do offline once in a while. From what we’ve seen, the best founders come prepared with a deck or note for this meeting. They run it with a structure and report their performance in a consistent manner – this is important because context compounds over time, and each successive conversation becomes more productive and focused. Along with their deck/note, they also share an MIS (which can be a Sheet or Excel) which has their P&L statement and key business metrics – tracked over time obviously.
In cases where you have multiple lead investors, you can have one board meeting with all lead investors or talk to them individually. In any case, different investors have different perspectives, and you’d need to spend time with them individually to talk about the business. However, this usually comes up at a much later stage.
With other existing investors, the best practice is to send them a monthly business update. It could be a note or a deck. We’ve even seen some founders maintain an archive on Notion and they send a link to the latest month’s update – this way, investors can access past updates as well. Further, it’s good to speak to them once in 3-6 months – different investors have different preferences – some like to meet, some are okay to just speak over the phone. In any case, keep them apprised of the progress.
The important thing with your existing investors is consistent communication, even if things aren’t going so well. We’re small investors in a company that has had a hard time – they’ve pivoted multiple times, had very little runway but each month, the founder sends an update where he talks about how they’ve brought on a new customer, and reduced burn to extend runway. Investors know startups are hard. Communicating with transparency through all the challenges builds a different kind of trust. Of course with lead investors, it requires you to have a deeper conversation about the future paths that the company can take, and to align on goals and timelines.
Now, when you’re preparing to raise your next round, your existing investors are your most important asset. Work with your lead investor to prepare your deck and data room, refine your pitch, and stress-test the narrative. We’ve even done mock pitches with some portfolio companies. Further, give your investors clear and specific talking points so that when any investor asks them about you, they know exactly what to say.
Potential Next Round Investors
This is perhaps the most important group – this is who you’d be selling to, in the near future. There are two parts to it: building relationships and maintaining relationships.
Please understand that investors spend a lot of time trying to find the best deals. They want to have the widest coverage for what’s relevant to them, and they want to talk to as many companies in any space, before deciding which one they want to invest in. Try to capitalise on that – find ways to talk to them outside a formal fundraise conversation.
From what I’ve seen, it’s worth having informal conversations as early as 6 months before you want to raise. Now, the tricky part here is that you want them to reach out to you, instead of you reaching out to them. The best way for that to happen is when your existing investors, or founder and operator friends champion you in front of others. As soon as they mention about you, most investors would try to reach out and have a conversation. Most of this work is done at an analyst/associate level but also happens at a senior level in a more selective manner.
However, as a founder, this can also be a distraction. What I’d suggest is take out a few hours or a couple of days to have these kind of conversations, and pace them towards T-6 to T-3 of the planned fundraise. The goal here is to have them build familiarity about the business, and for you to get a sense of what’s going on the market. It shouldn’t be a full pitch, more like an exploratory conversation. You can ask them questions about what they’ve seen in the market and what signals they’re looking for.
Whoever you’ve spoken to, add them to your email list and send out business updates to them. These can be very similar to what you send out existing investors, except for any sensitive information (usually around burn, runway etc.) which can be a negative signal.
Ecosystem at Large
This includes everyone else – investors who spoke to you and passed, investors who could be relevant a few stages later, not immediately. Basically, any investor that you’ve interacted with. The exception is investors who’ve taken a competing bet – you don’t need to send updates to them.
Here as well, you can send them the usual business update minus the sensitive stuff. Beyond emails, I’ve seen another practice that could be relevant – talking about your product launches and company journey on social platforms. I’ve seen founders write annual letters, talk about feature updates, document customer case studies, and more. The simple logic is that when more people see what you’re building and your journey, it increases your surface area of luck – that can help the right hires, customers or even investors, find you.
Management Mechanics
If you’re wondering that’s a lot of work, then I’ll simplify it for you into a manageable system. There are basically two activities: meeting investors, and sending business updates.
Now, your major focus is your meeting with the lead investor. That’s the most important one, that happens most frequently and where you need to prepare the most. Everything else should be downstream of that.
For this meeting, spend time writing your note/preparing your deck, and update your MIS with the latest numbers. Every founder has their own way of doing it but generally, it starts with a high-level review of the numbers, then goes into the qualitative – product, go-to market, use-cases, and more, and ends with the near-term goals.
For email updates, you can create an abridged version of the above – highlight the 2-3 key metrics, and divide the performance in highlights/lowlights and within that, you can talk about product, go-to market, and other things. You can conclude with a few lines about near term focus, and any specific asks (like hiring or customer intros). Of course, remember to remove any sensitive information, as required, based on the audience you’re sending it to.
For the non-fundraising investor meetings (with other existing investors or with potential next round investors), mark out a few days on your calendar and organise them tightly so that it’s not a constant distraction. As you grow, you can delegate a lot of the preparation and communication work to your Founders’ Office team.