Steps to Growth Capital Self-Study GuideStep 9

9.6 Build Good Relations With Investors

Your relationship with your investor began the moment you first made contact. Make sure every experience thereafter is a positive one. The key to a successful relationship is honest and open communication. Check out our Tips on Keeping a Good Working Relationship.

Once you've agreed to a deal, it's even more important to continue to be honest and open. You have to make the investor aware of all significant developments, even unfavourable ones. Remember that it's always better for you to break the bad news than for the investor to learn about it from outside sources. If you raise the issue first, you'll have an opportunity to discuss your plans to address the situation or to seek the investor's advice.

If you don't keep the investor informed and involved, he or she may pull the money out (under exit clauses) or be less willing to help you work out problems when they occur. As well, most investors and angels know each other reasonably well, and if you lose your credibility with one, you may find it hard to access this type of financing in the future. On the positive side, if the investor experiences you as trustworthy and straightforward, this may lead to further investments as your business grows.

Tips on Keeping a Good Working Relationship

Most investment agreements require some sort of ongoing formal reporting, such as the completion of a monthly financial reporting package. But you should strive for a higher level of communication with your investor that includes the following ideas:

• Reliability — ensure that the investor receives requested information (i.e. monthly financial statements) on time, according to the schedule contained in the agreement.
• Provide a meaningful management overview that explains the numbers whenever providing monthly or quarterly financial reports to the investor.
• Keep the investor aware of market trends and developments by inviting the investor to strategic sessions or industry seminars presented by external experts.
• Ensure that the investor feels comfortable in joining board of directors' meetings.
• Make sure the investor is aware of all major decisions. This policy not only keeps the investor up to date on developments, but also tends to remove potential conflict down the line. Keep in mind that the investor is your partner and not your boss. Follow your normal operating procedures and involve the investor in those decisions that are required by your investment agreement or shareholders agreement. Accept the investor's input as a positive contribution, but don't follow it blindly.
• Regardless of what you have to do to maintain the relationship, ensure that you have a common trust. If the investor feels you're not forthcoming and loses confidence in you, the remainder of your relationship will be very difficult. Conversely, if you have similar concerns about the investor, you should re-evaluate the situation. Ask yourself if it is advisable to continue the relationship? After all, you want to spend more time managing your business than managing conflict with the investor.

<< Previous | Next >>