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Published on: March 11, 2020
A startup’s guide to investor relations
At first glance, managing investor relations (IR) may seem like one of those aspects of running a business that belongs firmly in the future.
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:
- Liquidity: the amount of cash or cash-equivalent funds available to you, which should demonstrate that you would be able to at least cover your liabilities should the worst happen
- Current financial measures: annual turnover, sales, profit, costs compared with the same period the previous year, investment secured since your last announcements
- Other measures: number of employees, expansion of premises, projected growth
- New developments: recent customer orders and pipeline, relevant senior appointments, introduction of new products, significant partnerships
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:
- Build the confidence of current and potential investors, reassuring them that your business is both well-managed and confident about future success
- Raise new capital from investors who are interested in the progress your company is making and your plans for growth
- Establish good working relationships with investors that you can rely on when there is turmoil in the markets that is out of your control – but that may impact your performance in the short-term
- Reassure your existing team that they are working for an organisation that is already on track for expansion
- Provide accurate information for potential recruits
- Create the basis of a press release (for further down the road) that can be hosted on your website and distributed to media, helping to start a conversation about your growing company with commentators
- Prepare for a future exit, including potential IPO or trade sale by acting like a larger, listed company from the beginning
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.
“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.”Financial Reporting Council’s UK Stewardship Code 2020
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.
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.