PBL 10

Investor relations

Problem: 

How to create trust among investors?

Learning objectives:

1. What are different types of investors? How to attract, maintain and recover them?
2. How to communicate to/with investors?
3. How to manage company/brand reputation (trust)?

1. What are different types of investors? How to attract, maintain and recover them?

Angel Investors
An angel investor is typically an individual with significant financial resources that invests in start-up businesses. An angel investor tends to follow his instincts and invest in businesses that may otherwise have a hard time attracting other kinds of investors. In some cases an angel investor may only want a percentage of return on his investment, and in other cases he may ask for partial ownership in the company and a say in management decisions. Angel investor arrangements typically range from hundreds of thousands up to deals worth a few million dollars.

Peer-To-Peer Lending
Peer-to-peer lending is typically arranged via websites that bring investors and small business owners together. Entrepreneurs create a profile and post a business plan on a peer-to-peer lending website, and lenders bid on investing the business. The owner and the lender, which is commonly a private individual, negotiate an interest rate for the investment and the lender then supplies the funds to the entrepreneur.

Venture Capitalists
According to CNN Money, a venture capitalist is a funding organization that typically gets involved in companies that have already shown a history of returns. Venture capitalist organizations are rarely interested in risky start-up companies that may require a small amount of capital to get started. Venture capitalist organizations are typically interested in deals worth several millions of dollars. Venture capitalists normally ask to be placed in a position of partial ownership in the company in which they invest, and also expect to have a say in management decisions.

Banks
A bank loan works in much the same way as other business investments. Banks require the entrepreneur to describe his business and present a business plan, and then decides whether it is interested in providing funding in the form of a loan.

Personal Investors
Friends and family members with means can also be considered business investors. CNN Money points out that it is important to use an investment contract with friends and family members, just as you would with any other type of investor. The contract should outline the size of the investment, the rate of return and any ownership arrangements that may also be part of the agreement.

Source: http://smallbusiness.chron.com/types-business-investors-4115.html

How to attract?

Attracting an investor, whether it's a venture capitalist or angel investor, is no simple task, especially for a start-up. According to venture capitalist Jim Casparie, investors want "Ideas that can change the world." It takes time and patience to develop solid leads for investors. You can attract investors for a small business with preparation, planning, strategy and proper research. Finding an investor may be the key to launching your start-up business successfully.

Step 1
Prepare a thoughtful, well-researched business plan. Don't simply make statements about how successful the idea will be. Back up your statements with proof in the form of case studies and research studies. Gather information about potential competitors, and how you can set yourself ahead of others in your industry. Hire a business consultant to help you draw up the business plan if you're not familiar with the process. A convincing and thorough business plan is key to attracting investors.

Step 2
Network with other business people in your community and general area. Attend networking events, business fairs, seminars in your intended industry, and similar functions to pass out business cards and start establishing these connections.

Step 3
Save a significant sum of your money to invest in the business before seeking investors for the rest. If you approach an investor after you have put your money on the line, he may take your idea more seriously. Technology entrepreneur Tim W. Knox calls it "having skin in the game." If you're not willing to invest in yourself, he asks, "Why should anyone else be willing to risk his or her money in your business idea?"

Step 4
Ask for face-to-face meetings with potential investors. Prepare a computer presentation, video or other resource to demonstrate and back up your business plan. Give a demonstration of how your product or service works to boost the interest of investors.

Source:  http://smallbusiness.chron.com/can-attract-investors-start-up-business-4654.html

How to maintain investor relations?

Communicate consistently.
If your only post-campaign contact with your investors is an annual financial report, they'll likely feel disconnected from your business. Updating and engaging your investors will help to extract more value from their experience and mentoring.

Take advantage of social media.
 Most modern companies know that social media is now a necessary tool for success. If you're able to establish strong relationships with your backers by communicating and engaging with them via social media, they in turn can become brand advocates for your company.

Be honest and upfront.
Honesty is always the best policy, and this is especially true of crowdfunded businesses. Making promises you can't keep is bad enough when you're dealing with a couple of investors, but letting down hundreds of backers who put their faith and their money behind you can ruin your company. Sometimes your business doesn't always take the path you planned, and it's not always your fault, but in either case, don't try to cover it up.
Customers only fund projects that they believe in, and that deliver what they say. If you try to pull the wool over people's eyes, you lose their trust and then you lose their business.

Source: http://www.businessnewsdaily.com/7344-crowdfunding-investor-relations.html;
http://www.inc.com/ellie-cachette/springboard-five-steps-to-good-investor-relations.html

2. How to communicate to/with investors?

Communication strategies with investors.

1. First, you can’t go wrong with formal communications devices like written monthly reports. Monthly reports containing P&L information are a great way to inform investors about the status of your company and where funds are being allocated. This is especially helpful in entrepreneurial endeavors because investors can recommend course corrections if they see any “red flags” in the P&L report. They also might be able to suggest connections that can help your venture. This type of insight and guidance is invaluable when starting a company. One last thing to note regarding monthly reports is that they don’t need to be but so comprehensive. Monthly reports should give a detailed snapshot of your company at that time. 

2. A second strategy is monthly conference call updates with investors. Some of the investors prefer having the ability to ask questions about the report. You can still provide written documents containing financial information but instead of just sending documents to read at their leisure, you review the report on a conference call. This approach adds a personal touch to the process. It shows engagement and the willingness to answer any tough questions from investors. Also starting a conversation with investors can be great for brainstorming ideas. You can share ideas and advice more freely than on email.

3. A third strategy is in-person quarterly or annual meetings. This is probably the most effective communication strategy. Investors often expect that companies provide time for them to share their knowledge and provide advice because that is one of their responsibilities as an investor. When they have the opportunity to meet with you face-to-face and to see the operational side of the company, they have a better understanding of where improvements can be made or where successes are being had. 

Source: http://www.forbes.com/sites/patrickhull/2013/10/16/choosing-the-right-strategy-when-communicating-with-investors/

3. How to manage company/brand reputation (trust)?

In today’s online-focused world, any crisis will shortly be an online reputation crisis thanks to the real-time nature of social media. Even if a major news publication doesn’t report a negative story about a company, blogs, tweets and other social media can do great damage.The first step is to do everything you can to prevent a problem from becoming a reputational crisis. That includes planning how to best use every online platform your brand is on, not just jumping on the hottest new trend because everyone is doing it. It also includes constant monitoring of online brand mentions and sentiment, and strong threat detection and protection.

During a crisis, you’ll want to have someone on call who can monitor your online reputation, assess the reputational risks of various events and solutions, and suggest reputation-protection measures. Whether this person is in-house or an outside reputation manager, they need to be able to communicate with several teams and all key decision makers to make sure the solutions to the crisis are good for the whole company and solve more problems than they create. Because social media happens in real time, customers expect fast responses. To prevent minor problems from becoming reputational crises and to maintain a good reputation during a crisis, communicate and respond quickly. Fast communication is especially critical if the crisis involves product/service quality and safety or the security and privacy of customer or employee information.

Source: http://www.forbes.com/sites/cherylsnappconner/2014/03/04/top-online-reputation-management-tips-for-brand-marketers/

One of the most effective strategies for protecting corporate reputation is creating an early warning system that detects and tracks potential threats, and provides response-related policies and procedures, before the threat matures into a full-blown crisis.

Regularly and consistently communicating internally the importance of corporate reputation, and the company’s commitment to protecting it, is also important in ensuring that a positive reputation remains a priority for all employees and a core feature of the corporate culture.

Source: http://www.corporatereputation12steps.com/qa.html