As an early-stage life science company founder, and as an entrepreneur in general, you may need to raise money from investors at one point or another to fuel operations and growth.
Understanding what to expect from investors can be difficult to pinpoint. Understanding what investors expect from you and the founding team can also be a mystery.
Clarifying both parts during and after fundraising, and understanding what the current expectations are, can help improve and simplify relationships between both parties.
If you, your co-founders, and your investors come into the relationship expecting animosity, things will often end poorly. Setting expectations and cultivating a mindset of going on a growth-oriented journey together will give you the chance to have much better outcomes.
It is important that the company and those who are investing in it see eye-to-eye. Setting these expectations and following through on them allows all parties to feel valued and confident in their collaboration.
What Investors Want to Know
Building great relationships is important for founders in the early days. Having a positive reputation of being trustworthy, hard working, and a good person goes a long way. The more people know and trust you as a person, the more likely they are to invest in your startup.
A great place for every founder to start is clear and consistent communication. These are generally done in monthly emails that include a number of important metrics. Transparency is important when deciding which metrics to select for your reports. Some metrics to consider include:
- How long until the startup runs out of money?
- How many clients are there currently?
- How many months of runaway exist?
- What is the current revenue?
- What is the customer churn for your services offered?
- Have there been any key staff at the company that left or were brought on?
These questions can be uncomfortable, especially for a young startup, but they demonstrate an honesty and clarity that is appealing to investors.
Be candid when providing your metrics and milestones, as investors shouldn’t have to dig to find the information they need to know. Being candid in these instances can open doors that wouldn’t have been as available if you kept it secret.
Your investors want to see your company, their investment, succeed. If they understand the metrics and any potential problems that the metrics indicate, they may be able to help you find creative solutions to your problems.
In general, being loyal to your earliest investors is considered highly important. These early relationships often can prove extremely beneficial, and treating them as such is a best practice. Those early supporters can become lifelong allies in other startups you create.
Another thing that investors want to see is focus. A founder that has too many things on their plate can be perceived as lacking focus, which can make investors worried. If you are seen as wasting your time doing things that don’t benefit your end goal it can lead to investors not having as much trust in you, and by extension, your company.
What Founders Want to Know
Discretion is always something to look for in your investors. You do not want to have investors that are also invested in your competitors.
The idea that there might be information sharing is a concern, if not a common issue. It is important when sending out monthly reporting or other sensitive emails to investors that you do not expect this information to be shared or forwarded along to others.
Understanding the level of engagement from investors is important for founders to note. Angel investors have a wide portfolio that they engage with, and are thus less involved with most of the companies they bet on. Venture capitalists and venture capital firms, on the other hand, often manage a smaller portfolio and are generally extremely hands-on with their bets.
Whether you are dealing with venture capitalists or angel investors, establishing standards for contact is important. We are all busy professionals, but having the ability to speak to an investor during daylight hours seven days a week isn’t always possible.
Speak with your investors and understand what works for them in regard to contact and communication. Building a good relationship with your investors is predicated on your ability to effectively communicate with them.
If you are looking for additional funding, reach out to your current and previous investors first. This shows loyalty, and allows investors who are comfortable with your business model the ability to invest further or get involved with something new.
Relationship Building is Key
Entrepreneurship requires commitment from all parties, but it also requires strong working relationships. A healthy partnership between investors and founders is often key to a company’s success. Not only can investors fund your company’s endeavors, but they can introduce you to new investors who can help you grow and increase your valuation.
When startup founders are honest and transparent to their investors, those investors are more likely to go out of their way to ensure the founders’ success, perhaps even investing in future businesses they start.