But as successful entrepreneurs will tell you, the best piece of advice they received at the onset of building their venture was to start acting and communicating like a bigger company before they actually needed to.
As well as appointing a reliable accountant and building a robust capitalisation (cap) table, this includes setting up an IR programme. IR is a sub-branch of public relations; defined as two-way communication with investors, shareholders, government organisations and the overall financial community.
For a startup with a limited number of investors and shareholders, IR is naturally less complex than for medium to large companies. Nor is IR a regulatory requirement at this stage – but it’s still good to get on top of sooner rather than later.
IR for startups
Even the youngest companies should start communicating information on a regular basis to existing and potential shareholders.
Investors need to understand how your company is performing so that they can make fair, balanced and transparent decisions about whether to continue entrusting you with their funds, whatever your business size.
Information included in your IR communications should cover:
Preparing this information on a regular basis is a good habit to get into, not least because it helps you build a positive growth story over time.
You will also:
Successful start-ups will remain in close contact with investors in the weeks and months between, perhaps providing brief quarterly updates or ad hoc announcements in the case of significant developments.
Look to the future
It’s also worth understanding the direction that IR is heading. New expectations from institutional investors like pension funds and asset managers mean that future reporting will include measures around transparency, environmental stewardship, community impact, executive pay and diversity and inclusion.
As the Financial Reporting Council’s UK Stewardship Code 2020 states: “Environmental, particularly climate change, and social factors, in addition to governance, have become material issues for investors to consider when making investment decisions and undertaking stewardship.”
While smaller ventures are more likely to attract the attention of individuals interested in opportunities for passive investments than institutional investors, reporting standards tend to filter down from the top reasonably quickly.
Being prepared to demonstrate genuine proactivity in building a diverse workforce that can meet the needs of your customer base will become ever more important, as will showing that a business is committed to reducing waste and pollution.
Finally, investors are increasingly looking for businesses that have adopted, or plan to adopt, digitisation projects designed to reduce operational costs and improve productivity.
Business owners need to show that there is room for technologies like robotic process automation (RPA), artificial intelligence and machine learning that open up opportunities for future expansion within ecosystems and on platforms.
Get in touch to see how we can streamline your fundraising or cap table management.
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