Over the course of the Funding Findings blog we’ve touched on the importance of regular communication with your company’s investors and other funders – either current or potential. Not only should you keep a regular stream of communication to meet funders’ requests for information, but also because funders can provide valuable feedback and direction for your company. If you’re fundraising and have established a relationship with a potential funder, you want to provide regular updates to show your progress and develop the relationship further with the anticipation of a future investment. If your company is chugging along the path to achieving its goals, it’s mutually beneficial to keep everyone posted.
The key to effective communication with funders is to show continuous progress with respect to the goals your organization sets for itself. A startup’s progress is a function of how good/appropriate its goals are and how well it achieves those goals: progress = (realism of goals * aggressiveness of goals) * execution. Particularly for hardware companies in the energy or transportation space, goals are often milestones for either technology development or market/channel partner traction. For example, a large tech milestone for a battery technology may be developing the first cell prototype for testing, or achieving a certain performance target (kWh/kg, kWh/$, etc.). Market traction milestones could be signing an agreement with a distributor or securing your first commercial pilot project. To show progress to investors, simply show how your company has progressively hit the established milestones. When you hit those milestones, set some more! It’s a very logical, categorical way of demonstrating the value of your company and its potential.
But what about when the milestones change? What if your company makes a significant, albeit calculated pivot in its direction, and investors now have a different map of your progress? This throws a wrench in the simplicity of the milestone stepping-stones in the above paragraph. Communicating with investors becomes less of a checklist and more of an ambiguous dialogue in which your company and your investors are discussing what the goals should be. If pivoting and focusing on higher-level missions or goals rather than smaller executable milestones, first have solid reasoning for each of the changes and be able to communicate that reasoning. Even if you’re selling the dream to investors, sell the dream in a way that appeals to logic.
You and your investors may have disagreements about the new goals – especially if they funded your company under the previous milestone path. If left unattended, these disagreements can fester and lead to destructive relationships for everyone involved. To prevent this, identify each point of contention and work to hammer out the differences. Though this exercise is somewhat of a negotiation, try to keep the conversation amiable and focus on the mutually held goals between you and your investors.
I recently had a conversation with the CEO of a startup that was fundraising about how investors in the Midwest, as opposed to investors on the coasts, are particularly milestone-driven, rather than high-level goals. He argued that Midwest investors are overly concerned about the milestone progression at the expense of seeing the big picture and the value in being flexible in your business model. I agreed with his argument to a certain extent, but he conceded that the foundation of investor relationships was showing progress correlated against a set of goals. AKA milestones are important.
So when you’re having that sit-down with your board or a potential investor, sell them the dream, but don’t discount the importance of putting the notches in your belt.