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Don’t look for money, look for partners – principles of effective communication with investors

Sigma Software Labs and SPEKA created the series of articles on the development of a startup at various stages of its existence. Leaders of Sigma Software Group share their experience so that every startup finds its place in the digital world.

The author: Daria Yaniieva, Investment Director at Sigma Software Labs

Beginning a new round is a typical race for startups. And many companies forget about long-term perspectives by diminishing their focus on communications with investors after they receive funding. Attracting funds from an investor is a major milestone, but the development of quality relationships into the future is a not less important process, which will establish effective relationships in the company’s development.

Let’s start with smart money

In attracting investments, you are not only receiving capital but also establishing a cap table, in which you are giving each investor a part of your company.  Now you’re in one boat with them. Try to look not on the principle of easy money, but base it on the principle of partnership.

Your ideal investor is a person who, first of all, understands what you are doing. Secondly, there are opportunities to enhance your development based on your experience. These are the principles on which Sigma Software Labs based its investment strategy. We don’t work like a classical venture, but select only those company where we see an initial match between the decision and our potential. Our portfolio companies receive access to established contacts by properly positioning our business decisions:  from the initial straightforward introduction to our inclusion in the negotiating process.

Be Honest

An open dialogue simplifies many complex issues, including those involving business. The quality of our relationships is directly dependent on your openness with investors.  Show honesty from the very outset:  in numbers, plans and expectations.  The investor always tries to minimize his risks and thus it’s important for him to understand your global vision of the business and plans for the future, so that they can periodically compare expectations with reality.

Don’t forget about formalities

Even if you have dozens of meeting with potential funds, find the time to briefly summarize the meeting and send a note, irrespective of the results of the discussions.  You won’t have a second chance to make a first impression.  Use each call to your benefit, collect contacts and end each discussion on a positive note.

If you’ve agreed to the next steps, a bureaucratic note always has a place in the process, no matter how warm your discussion was.  Formalize the agreements and summary of the discussion to prevent differences of opinion and conflicts caused by time;  make certain you’re on the same page about the details.  A brief follow-up will help you to prepare a to-do list, define roles and set out deadlines, even if you missed some points during the call.  Don’t rely on your memory,  it’s always easier to refresh it in email.

Investment update

In order to rebuild partner relationships it’s important to always be in contact. Keep your investors abreast of current issues. Build your communications on regular investment updates and develop a very comprehensive structure for the letters. Let’s say that you send updates every month. Then the purpose of each letter is to provide the information in a way, which doesn’t require the reader to look for previous updates and to respond to questions clarifying the information received. Define the regular metrics and show their dynamics for the past periods so that the comparisons end in one letter and provide a visible image about the state of matters. Provide fundamental results and plans for the upcoming months.

Ask for help

If you were wise in your choice of investor with experience and the potential to expand your company, don’t be afraid for ask for assistance and advice. At worst, they can refuse.  But is that a real problem? If you continually keep your investors updated on the state of affairs, they certainly should see the work you are doing. And it’s perfectly OK to approach them for advice when you really need it. These people are also interested in the success of your company. As well, there’s a chance that your investor is an experienced business owner, who has already dealt with a similar problem. His advise will save you time and resources.

Be proactive

The investor provides the financial resources but it’s the team of founders who are responsible for their use and the ultimate result.  That’s why the defining criterion in the early stages is the team of founders.  Smart money is not a magical recipe.  It’s wrong to assume that you have found a new driving force for the project when you attract a strong investor.  The team’s responsibility is to learn about the investor’s abilities, send a detailed request and drive the subsequent opportunities independently.

Sigma Software’s client and partner network includes more than 200 B2B contacts, not including the personal networks of the management team, etc. Trying to find potential among them for each portfolio startup without a detailed plan is like searching for a needle in a haystack. Undoubtedly perfect matches happen when we see a business case and provide it to the startup team for consideration. But if we receive a high-quality executive summary and the client’s detailed description (business domain, company size, location, etc.) this immediately simplifies the task and speeds up the process.  A proactive position is not only a plus in the company’s growth, but also a big plus in your relationship with the investor since it underscores your involvement in product development and enhances a belief in your company’s success.

Many success stories are primarily based on principles of partnership.  It’s not enough to believe in this, but one needs to enhance these types of relationships between you and the investor.  Support the involvement of the investor, provide feedback, share your successes and difficulties, don’t shirk responsibility and show initiative. The establishment of an effective relationship with the investor should be part of your communications strategy by default.