In the world of tech startups, your story is your strongest asset, especially when it comes to speaking with investors. And the story investors care about the most? That starts and ends with your company’s finances.
Don’t just treat your investors as the people who give you money. Treat them like strategic advisors who can add value to your business beyond the injection of cash. The companies that perform the best are those that have built this kind of relationship.
Effective communication is the key to facilitating this pathway — the linchpin that holds everything together. In that vein, good communication is essential to work well with current investors and secure future funding. So, finance leaders and startup founders should pay close attention to their investor communication strategies to nurture and sustain these relationships.
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Evolving Landscape of Investor Communication in 2024
2023 was a rollercoaster for economies worldwide, especially in the US. Unsurprisingly, this turbulent economy, wrought with inflation, has significantly impacted SaaS companies that rely on venture capital (VC) funding. For instance, in Q2 2023, VC-backed companies raised $29.4 billion, a significant drop from the $44.4 billion in Q1 2023.
Effective communication strategies are non-negotiable in such circumstances, particularly for venture-backed companies accountable to investors. To keep up, organizations must adapt to the changes brought by the digital age, which has fundamentally shifted corporate communication from static, outdated methods to a user-centric strategy.
Successful companies start by understanding their objectives for each message, selecting the right platforms, channels, or mediums, and measuring the effectiveness of their communication. Most importantly, they meet the receiver where they are, breaking down complex information into easily digestible bites that support informed decision-making. These tactics are crucial for investors who are often pressed for time and rely on critical financial insights to assess a business’s trajectory.
So, when sharing a company’s financial narrative, spreadsheets or PowerPoint presentations just can’t cut it, particularly in an uncertain environment. If you can’t share your business’s story promptly or simply, you risk losing investor attention, resulting in missed opportunities for startup funding and valuable expertise that can help with course corrections, if needed.
Four Pillars of Effective Board and Investor Management
In today’s unpredictable economic landscape, where venture-backed companies across various sectors are grappling with market volatility, the playbook for board and investor management demands to be revisited. Now, more than ever, the relationship between finance leaders and their investors must be unshakeable.
In this section, we delve into four fundamental pillars of strategic investor communication — developed based on insights from seasoned finance leaders-turned-founders — that are key to thriving in challenging times and staying ahead of the competition.
1. Align on the Metrics That Matter
Amid the current economy, one thing is clear. The narrative surrounding board and investor communications has moved from the once common “growth at all costs” mindset to more realistic discussions about scaling efficiently and maintaining a forward momentum.
This shift underscores a need for a stronger alignment between finance teams and investors on the metrics that truly drive value. While previously the emphasis might have been on crafting a narrative of growth to showcase potential, now it’s all about having a more granular understanding of daily operations to assess where things stand — this helps understand how different scenarios might play out in the future.
Regardless of market conditions, some specific metrics and benchmarks remain essential in tracking and demonstrating company value to investors, especially between startup funding rounds. But before diving into those metrics, understand the “why” that drives your business and the reasons that influence your choice of metrics.
Below, we share some tips to help you align on the metrics that angel investors and VCs are looking for:
- Select metrics that reflect a profound grasp of investor priorities, highlighting your foresight in growth planning and addressing potential issues.
- Use these metrics to weave a compelling story about your business, articulating the rationale behind each number.
- Choose metrics specific to your company’s strategy, developmental stage, and performance. Key areas to focus on include operational efficiency, the status of your sales pipeline, market penetration efficiency, revenue growth trends, and customer retention metrics.
| Funding Round | Primary Objective | Typical Metrics That Matter |
|---|---|---|
| Series A | Show that there's product-market fit and a predictable growth path. | ARR, Growth Rate, Funnel Conversion Rates |
| Series B | Turn product-market fit into a go-to-market flywheel. | ARR, Net Revenue Retention, Runway |
| Series C | Scale the business model by expanding the go-to-market motion efficiently. | CAC, Sales Rep Ramp, CAC Payback, LTV:CAC |
| Series D+ | Prove the path to profitability and IPO (or exit). | Free Cash Flow, Gross Margin, Rule of 40 |
Examples of such metrics include cash conversion score that highlights capital efficiency, burn multiple, gross margin, SaaS quick ratio, net dollar retention (NDR), LTV/CAC ratio, customer acquisition cost (CAC) ratio, CAC payback period, and the SaaS rule of 40.
2. Set the Right Cadence for Communication
In times of market flux, the traditional cadence for board and investor communications that involves regular update emails, quarterly meetings, or ad hoc discussions won’t be enough. Short, timely investor updates may be preferred, especially as market changes affect business performance.
Additionally, as the frequency of communication goes up, you might also have to rethink how the information is presented, i.e., the communication format.
Investors could be anxious and want more frequent updates or in-depth insights into the state of business, but they want this quickly and efficiently. In these instances, a target, direct communication style might be the way to go, summarizing the details that interest investors rather than offering extensive information they might have to sift through.
"If you're seeing materials for the first time in a meeting and then you ask someone to dive into a really meaty topic, it's going to be tough. So, I think, where possible, send these topics ahead of time, and give folks a chance to marinate on them. And the other thing I would say is, just try to keep things time-bound, come in with an agenda. How do we want to make sure that we're making the most of our time and keeping the conversation centered, so you don't go down rabbit holes.”
In other words, the key is to balance timely communication with concise, easily digestible information.
3. Deliver Clear, Concise, and Actionable Updates
As explained previously, effective board and investor communication hinges on clear, direct, actionable points that can offer relevant insights into your company’s financial and operational health and maximize the value investors bring to your business.
“You never want to be hiding the ball or be perceived as possibly hiding the ball. So, you have to make sure you’re being upfront and practical when it comes to informing people about what’s going well and not going well,” said Parker Gilbert, co-founder and CEO of Numeric.
When done right, you’ll transform routine financial updates into strategic discussions. But to facilitate that, you need to pull investors into the conversation, helping them understand where they could be valuable.
“On the flip side, you always want to make your conversations actionable. You don’t want to be over-focusing on how hard the journey is. Everyone knows this journey is tough and there are going to be ups and downs. Make sure that you’re framing everything around what’s actionable, where investors can be additive to the business, and what’s getting you energized as a team,” Parker continued.
We’ve summarized some tips from finance leaders on how to best share investor updates:
- Lean on finance to analyze the “why” behind the numbers
- Be upfront with your updates and keep them actionable, as Parker emphasized
- Take an “early and often” approach to communications
- Brainstorm in board meetings and use investors as sounding boards
- Set reasonable expectations to make conversations more valuable
- Never send surprises over email
While private startups aren’t required to adhere to SEC disclosure requirements, these guidelines can still help identify crucial types of information relevant to investors and the board. As a general rule, always inform investors immediately when there’s bad news or any significant changes occur within the company, particularly if it impacts the financial health of the business or if you foresee any issues in the future.
4. Leverage the Strategic Value of Investors
At the end of this, there’s one main takeaway we hope you understand. Your investors’ role extends beyond fundraising. At best, they can be strategic partners who guide your company’s journey to success, potentially leading you to IPO — if that’s the intended destination.
Remember that each investor or board member brings different values to the business based on their unique backgrounds and experiences. For instance, by leveraging the expertise of seasoned investors and shareholders who deeply understand market cycles and dynamics, you can gain valuable insights to help you navigate economic trends and plan future funding rounds.
Ultimately, working with a diverse group of investors increases the likelihood of connecting with someone experienced in your specific challenges, bringing valuable learning opportunities. When possible, recognize investors’ contributions and include them in significant company milestones or celebrations. The relationship should be mutually beneficial, or investors don’t have sufficient incentive to dedicate their time and energy, on top of financial resources, toward your company.
According to Chauncey Hamilton, a partner at XYZ Venture Capital, leveraging the strategic value of investors begins with building stronger relationships.
"I think the relationship building outside of the boardroom is just as important as the time spent in the boardroom. And so, if you do an in-person board meeting, can you do a board dinner ahead of time so people have a chance to socialize and establish relationships outside of the boardroom? [...] Investors, I think, are very used to very different styles of communication, but you really want to establish a strong relationship with all your board members outside of the boardroom.”
How To Overcome Challenges in Uncertain Market Conditions
Startups in today’s market face numerous challenges, including economic volatility, rapid technological changes, and intense competition. Effective communication with investors is crucial in navigating any obstacles and gaining access to strategic advice in all these scenarios.
To sustain operations, SaaS companies should stay ahead of market fluctuations by ensuring an influx of cash to weather any climate or investing in product development and other strategic functions to beat the competition.
Prepare for the Next Round of Funding
Simply put, effective communication with investors is foundational for successful funding rounds. And the process of preparation involves several crucial aspects:
- Know the market
- Understand what investors want
- Identify who to approach for funding
- Build targeted investor lists
For instance, despite market pullbacks, there are still numerous opportunities in certain SaaS sectors, such as fintech. With this knowledge, you can tap into the right resources or network, communicate a clear path to profitability, and, most importantly, nail the go-to-market strategy and pitch deck to attract the right investors for your next round of funding.
Additionally, ensure you’re engaging the right ones before talking with investors. For example, consider building an investor pipeline spreadsheet organizing potential investors by various factors, including funding rounds, fund sizes, check size, investment themes, and relevant portfolio companies. This level of detail increases the speed of communication within your network to get the best introductions that benefit your business.
Gain a Competitive Edge
For startups to gain an edge over competitors, the key is to leverage data-driven insights and maintain strong investor relations. On the one hand, with data-backed insights, you’re making informed decisions and will speak to what investors care about the most — that their money is safe with you. Once you’ve secured future funding and armed yourself with expert advice, it’s easier to navigate bad times, future-proofing your company’s financial stability.
For strategic decisions that give you a competitive market edge, focus on these essentials:
- Experiment with different business models
- Explore new market segments
- Innovate and diversify product offerings to meet consumer demands
- Deeply understand customer needs to ensure product-market fit
- Leverage technology to improve operational efficiency
When dealing with an uncertain economy, prepare a robust crisis management strategy in advance to face any unexpected challenges. This way, you’ll protect the company and ensure business continues as usual, despite any curveballs.
Adapt and Thrive in 2024 and Beyond
As market conditions evolve, agility is crucial to staying ahead. Startups must continuously refine their communication strategies to stay ahead, ensuring resilience and positioning for long-term success.
To learn more about managing investor relations effectively, download our playbook for board and investor communications. Or, request a demo to see how Mosaic can help you communicate your company’s unique financial narrative with investors.
Communicating with Investors FAQs
How often should startups communicate with their investors?
The frequency of communication with investors for a startup will depend on the nature of the industry, business circumstances, the stage of the business, such as pre-seed or an early-stage startup, and if any sudden news is involved. Traditionally, monthly updates or quarterly reports are standard.
However, during volatile economic conditions, you may consider communicating more frequently, with short, actionable updates, to keep investors in the loop and reassure them of your business decisions. If you ever foresee a financial crisis, such as a cash flow crunch, or face sudden significant business changes, such as a change in leadership, it’s vital to communicate promptly.
What are some key metrics that matter most to investors?
How can startups prepare themselves for the next round of funding in uncertain market conditions?
How can Mosaic help startups with their investor communication?
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