Run toward bad news
Sometimes you need a moment. That’s OK. But after that, hiding makes it worse.
Process it … Then:
Talk about it
Make a plan
Act on it
Your team and investors will rally
— Jason ✨Be Kind✨ Lemkin (@jasonlk) March 31, 2022
So I’ve written pieces of this post before, in how to best manage your investors, if for no other reason that to increase the odds they write another check.
But I thought with so much change in the world, so many folks looking to stretch their runway, and with so many SaaS companies needing to fundraise in the next 9-12 month in a much changed and far more challenging fundraising environment … I thought I’d put together a quick Basic Guide to Building Trust With Your Investors.
While a lot of this is basic, most founders don’t do most of what’s on this list.
#1. Don’t hide bad news. I really can’t write this enough. It is natural to want to hide bad news, at least a little bit. Don’t — from your investors especially. They are built for it. Anyone that has done 15, 20, 50, 100 investments know they don’t all go perfectly. What spooks folks is when you don’t share bad news, or share it very late. More here.
#2. Don’t hide. Too many founders quietly ghost their investors when times get tougher. It’s happen to me 3 times just this month alone. The investor updates … just quietly stopped coming. Don’t do this. Everyone knows you are hiding, and it makes it worse. Everyone loses confidence, and pretty quickly when you go into “hide” mode. Apologizing months later barely helps. More here.
#3. Get monthly investor updates out super fast. Few things build trust better than when investors get a monthly update on the 1st of each month, even if it’s just a “flash” update subject to change when you have the final numbers in. Most of the best founders do this routinely, so it’s even worse when founders don’t do it, because every VC knows it’s a potential yellow flag at least. Better to get a quick update out on the 1st or 2nd that drag out a more detailed one later. This is your best hack to build and maintain trust. More here.
#4. Send out monthly Zero Cash Date and updated Projections Based on Last 4 Month Performance. This shouldn’t be hard. Take your burn rate for the last 4 months, average it, and include it as your Cash Out Date. Even better, include an update, dynamic projection of your top line revenues as well. It actually only takes 5 minutes to do, more on how here.
#5. Do real, scheduled, formal board meetings every 8-10 weeks. Every quarter isn’t often enough until you are bigger. And most importantly, don’t just … never schedule them. This has become too common. If you don’t schedule them, no one takes them seriously. And you lose a key chance to formally build trust every 8-10 weeks. And take them seriously. Send the slides out 3 days ahead of time. Have the whole team present. Do it for real. I know you are busy. More here.
#6. Don’t lash out. Your investors are going to say some stupid things, and they are going to say some thing that hurt and even feel mean. Criticism that at times doesn’t feel all that constructive. And most VCs aren’t CEOs or never were, and they often don’t sugarcoat their feedback. Mediocre founders lash out. The best founders listen to the feedback, acknowledge it, and find the best feedback in it and process it. Keep Calm and Carry On, even if you don’t love how investor feedback is delivered. It’s better than getting none. If you get none, that VC is often checked out. More here.
#7. Be responsive. Do founders really need to respond to their investors’ emails quickly? No. But do the best founders tend to do so? Yes. For many reasons, but it also builds trust. It shows respect, even if that respect isn’t always 100% fully earned. And when investors see founders take 3-4 days to respond. they again almost immediately put them into the Yellow Light category. It just is what it is.
#8. Ask how you are doing, for real. Push for an honest answer. Many VCs don’t want to create waves, and just say nothing. If you don’t push for feedback, ideally for a score, you won’t know. More here.
#9. Collaborate on fundraising. Fundraising is easy for very few these days. Put together a careful spreadsheet of targets. Ask all your investors to add their ideas. Even if they don’t have any great intros to give you, at least you want them to give you a great reference check. An existing investor that isn’t positive on the deal is a borderline Red Flag for new investors. Engage them in the process, and they almost always are more positive.
In the go-go days from late ’20 to early ’22, a lot of founders just didn’t want to do this stuff. They said it was a waste of their time, that they didn’t need to do timely updates, to have board meetings, to keep in touch. These days aren’t those times. These days, you need your existing investors to be your allies. At least, if you want any help at all raising any more capital.
A related post here:
(what’s going on image from here)
Published on April 6, 2023