Patrick Hull, a serial entrepreneur and angel investor, is chief executive of Phull Holdings, a private investment firm with interests in more than 30 companies.
Venture capital, angel investment and private equity firms have become an increasing attractive form of financing for private companies, especially as the economy continues its uneasy path to recovery. Businesses, especially those in the start-up or growth phase, rely on these private forms of investment to take their companies to the next level.
Despite the importance of raising capital from private sources, too many companies continue to mishandle a critical component of these types of partnerships: investor relations. In my own experience and through conversations with fellow private investors, start-ups, small businesses and mid-level companies have become lax in their duties to their financing sources. Consistent communication and strong relationships with investors will make it easier for e xecutives to raise capital and leverage resources for their company's growth.
Well-executed investor relations require consistent, frequent and honest communication between investment firms and young companies. Considering how important that relationship is, this should not be a new concept. Investment firms and their principals are not A.T.M.'s that are uninterested in receiving a return for their money. They should be treated as advocates and resources. They are members of the company's team and should be kept informed of developments. Too often, executives approach investors only when a company needs more money. Instead, they must establish consistent communications and build relationships with them. Investors now expect this consistent level of communication from companies, and it should become standard practice.
Reporting is a critical component for investors. In a time when text messaging, Facebook posts and tweets are commonplace, it is essential for these communications to be more formal. Investors expect that updates, financial information and questions be delivered in writing, either through mail or e-mail. Executives should send informal and brief updates to investors on a monthly basis. The monthly update should include profit and loss information. A more substantial report should be issued to investors on a quarterly basis. This report can include detailed financial information and be longer than the monthly updates.
In addition to reports, investors should demand quarterly update meetings. These meetings can either be in person or via conference call. As investors, we expect the opportunity to provide advice because that is part of your responsibility to us. These meetings also benefit the companies in which we've invested money. Ideas for further growth opportunities are likely to arise during strategic and collaborative brainstorming sessions with investors. Businesses can benefit from the experience and contac ts. If a company is on an investor's radar, the investor is more likely to make connections with others who can help the business grow or provide additional resources.
The most important factor in investor relations is honesty. Most private equity firms monitor financial data and day-to-day operations. However, at the venture or angel investing level, many investors do not have the time to micromanage these elements. That is why an honest assessment of the business's successes and challenges is so important. Relationships, whether they are personal but most especially professional, are built on a trust and transparency. Investors understand that there might not always be good news. That is business. Moreover, investors can serve as crucial allies to address challenges and will respect companies more for their honesty.
As investors, we are taking a financial interest in a company. Therefore, consistent communications force accountability. They also encourage eval uation to ensure that the operations or objectives of the company are moving in the right direction. When executed properly, executives will be able to grow their business and raise capital more effectively. The insight that we provide can help build infrastructure so that the start-up can be the company that it dreams of becoming.
