3 Ways Startup CEOs Can Develop a Better Investor Relationship

Active seed investors spend a great deal of time thinking about how to best manage their portfolio CEOs and founders.

This is not because investors ever want to operate their portfolio businesses day-to-day. Rather, it is because a strong CEO/investor relationship can have a significant impact on the trajectory of an early-stage company.

The best investors can be instrumental in the success of a business, just as its co-founders or initial key hires are also essential in driving the company’s direction. The worst investors can derail, delay, or permanently damage any shot at a positive outcome, making it all the more important for CEOs to foster strong investor relationships.

Whether you are a startup CEO or an investor, it’s important to remember that relationship-building is critical to everyone’s success.

This article aims to guide CEOs and founders on how to manage their venture investor relationship, while showing investors their role in strengthening the relationship, ultimately achieving a successful investment.

Identifying the Value-Driving Opportunities

The best way for a CEO to manage venture investor firms is to identify where the true value lies within a portfolio. Recognize the tasks where investors’ time, knowledge, and networks have the most leverage for management. Here are a few areas where it may be most beneficial for CEOs and investors to spend time together:

• Formative product and business strategy discussions.
• Fundraising insights and connections.
• Identifying and interviewing key hires.

In addition to this, a CEO offering empathy during bad times and ego-checking during good times, is also instrumental for a business.

Good Management Drives Engaged Investors

The best operators will manage venture investors about as well as they can manage their entire operation. This includes the employees, the company culture, the board, and the company as a whole.

What Do Well-Managed Investors Look Like?

A supportive investor base is helpful, aligned, and engaged. They recognize their own deficiencies and limitations. They are also wholly supportive of the business and management, while continually pushing the company to fulfill its potential. Properly communicating with investors is critical to the business’ success, which is why investors must encourage founders to keep all of their investors in the loop from the very first day.

When they are managed poorly or left to their own devices, the worst investor bases can be full of discord and discontentment. At their worst, they can act disengaged, regressive, defensive, and self-interested.

3 Pillars for Communicating With Investors

Strong management-investor relationships are based on trust and communication. Here are three key factors that help startup CEOs to manage their investors.

#1: Align on Vision

Some of the most tenuous relationships happen when investors and management have different visions for the company. CEOs who can manage that investor relationship adeptly will ensure that they clearly articulate the company vision from the very first meeting. These CEOs also ensure they take on investors who are aligned with that vision.

What Defines Vision?

The meaning of ‘vision’ is purposefully broad. The most important vision to align is that regarding the overarching mission and strategy of the company. What are you building and why?

Over time, this will also extend to the details. Do you optimize for margins or growth? Inside or outside sales? Are you perfecting a product or releasing a minimum viable product (MVP)? In all cases, alignment on vision starts with open dialogue.

Vision Is CEO-driven

While investors can often provide helpful strategic guidance, they shouldn’t be driving the long-term company vision and roadmap. The goal should ultimately be founder- and CEO-driven. The vision can change, evolve, and be refined, so this isn’t a one-time exercise. In fact, founders should start every board meeting by re-stating the company vision. This ensures that the strategic discussions that follow will start from the same foundation.

#2: Be Proactive

Investors are similar to employees. You will gain more and experience fewer missteps through continuous, proactive monitoring, rather than through management after the fallout. When an investor or employee expresses displeasure, those negative feelings have usually been simmering for months.

As a company grows and its employee and investor bases expand and diversify, proactive communication becomes crucial for strengthening the CEO and investor relationship.

There are two parts to proactive communication:

• Drive consistent communication: To be successful, companies must communicate regularly with their broader investment group. Keep in touch both on a consistent time frame and as issues arise. This will help to nurture relationships over time.
• Build strong personal relationships: The very best CEOs work hard to develop personal and professional relationships outside of scheduled board meetings or investor calls. This is especially important for seed-stage investments, as companies will need the long-term support of their investors over multiple financing rounds.

#3: What’s Really Going On?

Relationships are all built on a foundation of trust. CEOs who allow investors to see what is really happening in the business — the good, but more importantly, the bad — will quickly build trust with the investor base.

Experienced investors know that something is always broken in every startup. Being vulnerable and empathetic creates a deeper investor relationship. That’s just how humans are hard-wired.

To Err Is Human. To Admit To It Is Good Management.

If founders and CEOs are forthcoming about mistakes, concerns, and threats to the business, they’ll often find that a supportive investor base is ready to step up. From there, the trust builds.

Start with the small things, such as a bad hire or a missed sales close. By the time you arrive at the critical threats, you’ll have a trusting, engaged investor base that’s willing to help.

Give It Time To Grow

Like all relationships, the CEO and investor relationship takes time, energy, and intention to cultivate and grow. By focusing on the three core pillars of managing investors, CEOs and founders can turn their investors into assets rather than anchors for their company. For investors, responding to these efforts with attentiveness to the company’s vision and challenges can help ensure the startup succeeds in the long term.

We think you’ll also like:

1. How Startups Obtain Venture Capital Funding
2. Improve Your Leadership Communication Skills and Make a Bigger Impact
3. Makin’ It Rain: Successful Startups are Investible Startups

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. The Start Up/Small Business Advisor: Raising Capital: Negotiating with Potential Investors
2. Bare Bones Board Basics: Episode 8: Soft Skills Workshop: Leadership, Communication & Trust
3. The Start Up/Small Business Advisor: What Every Founder/Entrepreneur Must Know

This article was originally published on May 30, 2023. This article was most recently updated by the Financial Poise Editors.]

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