Written by, Samuel K. Burlum, Investigative Reporter and author of The Green Lane, a syndicated column, Published on 9/30/15, a www.SamBurlum.com Exclusive
Source: Sam Burlum, as CEO and President of Extreme Energy Solutions, Inc., a green tech company based in New Jersey, has had plenty of experience in communicating with investors. He shares some of his practices that have aided in developing confidence and trust with shareholders.
In today’s market, for any innovation to become commercialized on the large scale, it takes a recipe of things, including time, devoted and determined team of staff, a winning concept or product, and capital. Most start up organizations lack the final component, which is the proper funding to go the distance in developing their product, to market the product, and have enough resources for the market to catch up to the company’s innovation (market demand). According to the Small Business Administration, the majority of new businesses fail within the first two years because many of them are underfunded.
So now you have been able to overcome the statistics and have managed to prove your value creation to an investor or group of investors, how do you continue to build trust and confidence with individuals whom have trusted you with their financial resources? Here are eight practices that will continue for good investor relations as you grow your company and begin to commercialize your product-idea.
1). Establish a Board of Directors and/or Advisory Board. There is nothing more frightening to an investor than a lone wolf on the loose with millions of dollars of other people’s money. One of the first steps in providing confidence is to establish a team of leadership, comprising of both trusted advisors you admire and honor their counsel and a few individuals in which represent the concerns and voices of the investors outside the founders. All Board members should be elected to their post, demonstrating a democratic process where both founders and investors can feel comfortable that they are represented at the table. Leadership should be diverse, a mix of skillsets that complement each other in order to develop a positive strategy for growing the company. Board members can be vital in verifying the company’s activities, if they are involved in high level meetings with potential clients.
2). Provide monthly communications-updates. Once you receive the proceeds from an investor that is when the real work begins. Many founders of start-ups have a tendency to sever communications with investors once they have cut the check. Founders and company leaders need to provide a monthly update to investors on the company’s progress; discussing growth trends, and if there are challenges, how those challenges are being countered by the leadership. Establish a monthly conference call and newsletters where you provide a direct communication with investors will help them better understand how the company is doing.
3). Offer transparency-provide the data. Your voice and message can only go so far. Provide the “proofs” that your company is on the right track. Letters of intent from potential clients; signature pages of contracts, copies of checks from clients, are all proofs that demonstrate that you are hitting the pavement in growing the client base of the company. If you have a technical product, or a product that requires testing before it is introduced to the market, disclose the test results with your investors.
4). Institute and implement controls. Many founders don’t have a consistent plan how to control or curb spending of investor resources. Develop a budget or a list of priorities for the use of funds, so investors have an understanding of how money will be spent. Financial controls such as Quick Books or Net Suite, allow for multiple users to view financial transactions and data. Either and/or Board Members and/or a third party accountant who can access reports and activity will provide a self-policing and deter founders and/or staff from using investor proceeds on lavish items or personal luxuries and perks.
5). Defer one’s salary until the company is sustainable. A noticeable trend with founders is that usually a founder or CEO will reward themselves with a large salary once they have received substantial amount money from an investor. No investor is responsible for the personal lifestyle of a founder or CEO. An investor committed their financial resources to the company, not the personal affairs of the leadership. A founder or CEO of a company which relies on investor capital until the company begins to make a profit should either defer their salary, meaning that the founder and/or CEO not take wages or salary until the company and its investors will be made whole by consistent cash flow; or at the very least should take a significantly reduced salary or wages relative to the current company situation until the company is sustainable.
6). Inform investors of your whereabouts. If you plan to be out of the office for an extended period of time, disclose your schedule and your whereabouts to your investors. If it is work related, then disclose a list of scheduled meetings, the purpose of those meetings, the desired outcome of the meeting, and the actual results of the meeting. When you are unreachable, and there is a lack in communication, investors will automatically assume the worst; that you ran off with their money. So by disclosing your schedule, travel itinerary, and the purpose of the travel will remove rumors and fear. If you plan to be in an area where you know investors may live or work, reach out to them on your trip and meet with them if they are available.
7). Have an enforceable Operating Agreement/Company Charter. Before any money is put on the table, the company should have an Operating Agreement and/or a Company Charter, which spells out the rule of law within how affairs of the company will be handled. The more areas of concern that can be addressed up front, in an Operating Agreement or Company Charter; will provide a road map for how the company and its leadership are to conduct the affairs, fulfill the vision and purpose of said company. An Operating Agreement that addresses such items on how to account and treat profits/losses, formation of Board of Directors, and a process for holding founders, executives and leadership accountable to their fiduciary responsibilities are all important factors in protecting the interest of investors.
8). Be available to answer questions. Founders and executive teams must make themselves available to answer questions investors may have about the activities and ongoing business of the company. If an investor has a question pertaining to a project or product sale, a founder or executive should be thankful, for it shows that the investor truly cares about the success of the company. Set up a system in which investors can send in their questions and have their voice heard. Another practice that will allow for investor concerns or questions to be handled is to allow for investors to visit the company’s office, and let them review documents, data, letters, contracts; this may also answer questions they may have about specific details about a project.
These are all practices in which I have instituted in order to establish a healthy and positive relationship with my investors. A relationship with an investor is a two way street. If you extend the olive branch in reaching out to investors, communicating with them, making information available for their review, and the investor does not take the initiative to engage; then you are still obligated to provide information to investors about the progress of the company, until the investor has captured a return on their investment and are no longer a part of the company. By taking the initiative and position to protect the investment of others will allow you to develop a trust and bond with your investors, where they can be confident you come from a place of integrity.
Samuel K. Burlum is an investigative reporter who authors articles related to economic development, innovation, green technology, business strategy, and public policy concerns. Burlum is also a career entrepreneur who lends his expertise as a consultant to start-up companies, small businesses, and mid-size enterprises, providing advisement in several areas including strategic business planning, business development, supply chain management, and systems integration. He is also author of The Race to Protect Our Most Important Natural Resource-Water, Main Street Survival Guide for Small Businesses, and Life in the Green Lane-in Pursuit of the American Dream.