Copious amounts of advice is available regarding how to manage one’s investment but next to nothing about how to manage one’s investor and yet this person can add significantly more to your business than just cash.
Insight and perspective
Your investor is potentially an incredibly valuable resource to your business. Keeping your investor on side, and getting the most out of them, requires careful thought and management.
You can’t fire an investor so it’s vital that you take the time to develop a good and solid relationship with them. Handled properly you could be together for a long time.
Investors typically bring insight and a perspective on your company and your industry from the vantage point of everything else they see and do on a daily basis. This perspective is valuable because it is from both within your industry but also outside of it too.
They are also very adept at networking, will have extensive networks and can make valuable introductions.
Meeting your investor’s needs first and foremost
Investors invest for many differing reasons, they have different aspirations and ambitions. Satisfying all needs, wants and requirements is not easy, but there is one universal requirement, they need the truth – or as close to it as you can get. There is no point trying to paint the picture you want them to see. You will win more respect if you deal honestly and frankly and the relationship will become mutually supportive. The real difficulty is in balancing the need for truth whilst also articulating the art of the possible.
Of course an investor will never know as much about your business as you do. He/she is not running the company, the CEO is. Generally speaking an investor is better at giving advice than instruction – it’s a fine line.
5 rules for managing your investor
1. Keep them informed
Proactively and regularly remind your investor of the progress you have made so far. Be realistic, honest and frank. It’s all too easy to get bogged down with the frustration of missing yesterday’s objective or the deal that’s slipped or a promise to a customer reneged on, but it is important to keep reminding your investor of how far they have come and weigh up the cost of progress.
2. Pitch the future
Help investors to see what success in the long term might look like. Break this down into a journey of 1, 3 and 5 years. What looks like success at the end of 12 months maybe very different to what success at the end of 5 years might look like. Taking this approach allows investors to see realistic progress.
3. Validate the plan
Validate the business plan and progress to date. Are you where you think you are? If not why not? What do you need to do to get back on the right track?
This validation can take many forms:
- Customer feedback
- Empirical data from the quantity and quality of customer orders
- Customer satisfaction survey
- Level of participation in user groups
- Industry commentators
- Competitive activity
4. Get the most from your investor
A seat on the board
Most venture capitalists and business angels will have a place on your board so that they can monitor what’s going on and crucially be part of the decision making process. Ensure they are a fully participative member. Give them actions. Engage their knowledge and experience. Seek their advice if you have a particularly challenging issue. Ensure you have a two-way fully supportive relationship. They will sit on multiple boards so ensure your demands on them are realistic.
Tap into their networks
This is a very valuable resource for you in terms of potential new clients, colleagues, advisors and potential future acquirers or acquirees.
Attend portfolio events
The larger venture capitalists hold events for their portfolio companies to share experiences, facilitate networking, and provide an opportunity to learn about new practices or technologies that could help their business make the next step. If your investor isn’t doing this then encourage them to start.
5. Keep your exit in mind
It’s also worth remembering that a VC will only make money when they exit. However the timing of your investor’s exit and your exit may be different. Understanding these differences will avoid conflicting expectations.
At Isosceles …..
We have found that most small and medium businesses will have a financial controller or finance manager but no Finance Director. Increasingly investors look for validation from a Finance Director (and the more independent the better!). This is because a finance controller can present accurate and timely management information, but it needs the experience of an FD to use this information to paint the picture the investor requires concerning the financial health of the company, the direction of travel and the hazards that lie ahead. Additionally an FD should have the gravitas to push back at executive level.
Written by Mike O’Connell, CEO and Founder