/ How to keep your investors happy - Q&A with angel investor Ash Phillips
Thu Sep 16 2021 - 5 min read
When founders are putting together their startup plans, they’ve got a lot to think about: Whether their idea is viable, for starters, and where to find the tech expertise they need to pull it off.
One question that doesn’t always come to mind is, “What kind of relationship am I going to have with my investors?”
But building a good relationship with your investors is just as important as the rest. They may not be doing any coding or marketing, but they’re so integral they’re almost a team member too. So what can you do to make sure they’re happy?
Q. What are investors looking for in a product?
A. A great place to start is understanding why investors get involved in the first place. A lot of people think investors are just rich people trying to get richer. And sure, sometimes that’s true, but there are just as many who invest because the project is something they’re truly passionate about.
After all, startups are one of the riskiest investments out there. If all they wanted was a safe ROI, investors would put their money into the housing market or stocks and shares instead.
It helps to get to know the different types of investors, too, and where their money is coming from. If you’re raising from an angel investor, that funding is mostly coming from their back pocket. Because of that individual nature, you’ll probably have a much more personal relationship with an angel.
If you’re working with a venture capital firm, then your investor is going to be more like a middleman between you and the institution’s pot. Venture capitalists have a bit of a reputation for asking for big chunks of equity in exchange for investment. But it’s important to know that’s not greed on their part - because of startups' statistical risk of failure, they have to have a big enough stake in a successful company to pay back the fund in the end.
Q. What makes for a healthy founder-investor relationship?
A. Most of the time, the power balance between founders and investors is heavily skewed towards the latter. The narrative is that startup founders approach investors like it’s Dragons’ Den and ask them not only for money but also approval that will make or break their entire business. And that’s fundamentally wrong.
For starters, investors don’t know everything. They know a good pitch when they see one and are obviously astute as to where the market’s going. But they don’t know your space as well as you do, so if they turn you down - as crushing as that is - it doesn’t mean you don’t still have a strong business idea. Every investor has a story about a business they missed out on, so don’t see them as the final word on your potential.
To be clear, I’m not saying investors are begging to feel less important - let’s face it, narcissism kind of comes with the territory. But you don’t want to start out your journey with them on the wrong foot by building an unhealthy or unsustainable relationship.
The way I see it is that while startups are risky, their capacity for spotting and solving market problems also makes them potentially one of the best return on investments out there. In a way, it should be the investors that come to the founders, they’re the ones asking for the opportunity to put their money behind the next Apple or the next Uber.
Q. How much technical detail should you tell investors?
A. While you want to avoid pedestaling investors, you also don’t want to underestimate them, especially when it comes to how much they know about the tech you’re building.
That will vary a lot between investors. Some will have a degree in the field while others will be passionate but unaware observers. You can try to research their backgrounds and past investments to gauge their knowledge, but honestly, most of the time it’s best just to be upfront and ask. It might be awkward for a moment, but it’s better than bamboozling or patronising them by judging it wrong.
If you’re a non-technical founder, bring your tech lead or CTO to the pitch so they can answer any technical questions the investor might have and go into full detail if that’s what they want. If you’re outsourcing your build to an agency, bring them too so the investor can see who’s involved and feel reassured you’re not getting ripped off or duped by a third party.
Q. Once an investor is on board, how do you keep them happy?
A. While you’re building your business, your investors will want to know how things are going (and how their money is being spent), so make sure to keep them updated. The key here is little and often - monthly updates are fine, or quarterly at the very least.
The updates don’t need to be too involved. You’ll want to include some metrics, like your run rate vs burn rate and any sales figures, so they have an idea of how you’re operating and what your funds are looking like.
But investors don’t just care about whether or not you’re profitable yet. They also want to know how you’re doing, whether your team is OK mentally and physically. It’s not a must-have, but it’s a nice-to-have. Good investors know that the best ROI will come from a team performing optimally, so the right people won’t want to see you hustling yourselves until you burn out.
Q. Is there anything else investors want from a founder?
A. As well as saying how you’re doing, let your investors know if there’s anything you need. They’re putting in their money to see it go further, after all. If, for example, they can have an impact on growth by putting out a couple of emails to contacts at big retailers, they’ll do it.
Other than that, the best thing you can do is to just crack on and deliver the goods. And that means PR as well as product, especially if you’re pre-market. Hearing how you’re doing in updates is one thing, but knowing the world sees you as a fresh, exciting business - one that other investors wish they were part of - is another altogether.
Honestly, if you can give your investors something they’re excited to talk about on the golf course, or wherever it is they go, that goes a long way to making them happy.
Ash Phillips is an experienced startup advisor and the founder of Dffrnt, an organisation providing business benefits by subscription to creators & communities everywhere. He's also angel investing in early-stage startups via Ada Ventures with a focus on gaming infrastructure, community-powered brands and the future of work. He's made 3 investments this year via Ada including PlayerState, Genie and Wildpoint.
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+44 (0) 117 456 6433
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