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- You aren’t getting the most out of your investors – here’s why!
- The investor relationship
- Why you aren’t getting the most out of your investors
- How to maximise investor collaboration
- Common questions related to investor collaboration
- Conclusion
You aren’t getting the most out of your investors – here’s why!
Choosing the ‘right’ Investor for the business they run is one of the most important decisions a Founder or CEO can make. It is a decision that is about much more than money. The ‘perfect’ investor should not only be able to invest cash, but be able to support in executing the business strategy with relevant experience, contacts, insights or access to new markets.
However, many business owners find themselves facing challenges in fully leveraging the value their investors add. From communication gaps to misaligned expectations, or the extremes of limited involvement to trying to be ‘a backseat driver,’ these hurdles can hinder the realisation of the full potential of a business.
In this blog, Midven investment director and fund principal for the West Midlands Co-Investment Fund (WMCO), Rupert Lyle, delves into the importance of investor collaborations. Explore the common challenges business owners encounter, and the insights and strategies for overcoming obstacles.
The investor relationship
The process of choosing an investor has similarities to choosing a partner or spouse. If the chemistry is right, it will be a wonderful and self-fulfilling relationship. If it is wrong, the relationship will flounder and end in an acrimonious split – the loser in which won’t be the investor (their legal protections will see to that!).
Key to a successful relationship with your Investor is the need to align stakeholder interests at all times. This is often more complex than it sounds as Founders often wear a number of hats – as a CEO, an employee and a significant or majority shareholder. This can make it difficult to align completely with a shareholding-focussed investor.
Understanding the dynamics of your investor relationships is necessary for business success. Beyond providing capital, investors offer valuable insights and networks that can propel your business forward. Neglecting this understanding can lead to missed growth opportunities and strained collaborations.
Failure to understand and nurture investor relationships can mean that business owners overlook expansion avenues or operational delivery benefits. Both of which are key things that align all investor interests – and can hinder progress due to unclear or misaligned expectations.
Identifying key stakeholders and decision-makers within your investor network is also crucial. Recognising and understanding their skills and perspectives will contribute to aligning strategies, unlocking the full potential of their support.
However, even in the best relationships parties can become unaligned (usually due to misunderstandings or a lack of communication) and need mediation. This is usually best addressed with the appointment of a capable Non-Executive Chairperson. If ‘on the ball’ this person can spot a misalignment of stakeholders before it happens and realign expectations through stakeholder management.
Regularly assess your investor-business owner relationship by gauging communication levels, understanding mutual expectations, and aligning partnerships with shared goals. Periodic check-ins will help you celebrate successes and identify areas for improvement. These steps are instrumental in maximising the potential of investor partnerships, fostering a collaborative environment for business growth.
Why you aren’t getting the most out of your investors
Let’s delve into three crucial issues that often hinder the full potential of your investor partnerships, offering actionable insights and real-world outcomes to overcome these challenges.
Problem: Lack of communication
Solution: Establish effective channels
Effective communication is the linchpin of successful investor relationships. Communication breakdowns can slow progress and collaboration. By embracing regular and open communication, businesses can build trust and keep investors engaged.
Imagine a scenario where a startup maintains clear and honest communication channels with its investors, sharing development milestones as well as challenges faced in product scalability. This transparency establishes a foundation for trust, creating a collaborative environment where stakeholders can offer strategic advice and guidance.
Problem: Misaligned expectations
Solution: Align goals and objectives
Differing expectations between business owners and investors can lead to misunderstandings. To overcome this, it’s crucial to identify and align expectations. This may involve reaffirming the strategy, revisiting initial agreements or updating business plans to ensure both parties share a common vision. Reestablishing goals and objectives not only prevents potential conflicts but also sets the stage for a more harmonious and productive collaboration with shared expectations.
Problem: Limited involvement
Solution: Actively involve investors
Investors can contribute more than just financial support; their active involvement can significantly impact your business. Recognise that limited investor participation can reduce your business’s growth potential. Strategies to encourage active participation can include inviting investors to advisory roles, seeking their input in strategic planning sessions, or involving them in key decision-making processes. These approaches not only capitalise on their expertise but also foster a collaborative environment where their contributions are valued and business autonomy is preserved.
How to maximise investor collaboration
These are the pillars that form the foundation for a strong and mutually beneficial relationship between entrepreneurs and investors.
- Appoint a Chairperson:
A CEO runs the business. A Chairperson runs the board and is responsible for regular stakeholder communication and ensuring all stakeholders are continually aligned. - Build a transparent partnership
Transparency builds trust. Understand the importance of openness and honesty in your partnership and discover tips for fostering a transparent environment. - Regular updates and reporting
Keeping your investors informed is key. Establish a consistent reporting structure to share progress and address concerns, ensuring a well-informed investor group. - Involve investors in decision-making
Tap into the expertise of your investors. Explore opportunities for involving them in decision-making without compromising your business autonomy.
Common questions related to investor collaboration
In this section, we’ll answer some of the burning questions business owners often have about collaborating with investors.
- Q: How often should business owners update investors?
A: At Midven, we recommend establishing a consistent update schedule, such as monthly board meetings, to keep investors informed about the progress, challenges, and successes of the business. This frequency ensures that they are continuously engaged and have a comprehensive understanding of the company’s performance. - Q: What can be done if expectations are not aligned?
A: If expectations are not aligned, we recommend initiating open and honest communication with investors. Schedule a meeting to discuss and clarify expectations, seeking compromise and revisiting agreements if necessary. If challenges persist, consider involving a neutral third party to facilitate constructive discussions and find mutually agreeable solutions. Early and proactive resolution is key to maintaining a strong investor-business owner relationship. - Q: How can entrepreneurs involve investors without compromising business autonomy?
A: We encourage entrepreneurs to proactively involve investors by implementing the aforementioned strategies. In this way, business owners can create a collaborative environment that benefits from investor input while safeguarding the independence necessary for effective business management.
Conclusion
Investors are not just financial backers; they can be powerful allies, bringing expertise and strategic insights to the table. As you navigate your investor relationships, remember that proactive efforts can turn your investors into valuable collaborators. Strengthening these partnerships is a mutual journey towards success!