Investor Communications - How, Why and When To Communicate

It doesn't matter what size company you are - start-up, latter stage or publicly held - it can really pay to communicate with your investors.  Whether they are banks or other commercial credit firms, angels, venture capital firms or you report to the SEC, you should plan your reporting format and content to tell the story of your recent business results.

Be Prompt With Required Reporting

No matter the type of institutional investor, there will be an established schedule, form and content requirement for reporting as part of your investment agreement.  Be aware of the schedule and content needed and gear your business for providing that information in plenty of time.  Too often financial statements are held up by both internal and external issues.  It is a clear sign of the sophistication and efficiency of your business that you report on time.

Report Content To The Next Capital Level

While you should always remember your audience, our experts say that it is a good idea to report beyond the basic content requirements of a capital agreement.  For example, the covenants of your loan document might call for the presentation of six month and annual financial statements.  Take the next step and provide customer and sales analysis, new product introductions and other matters of strategic importance.  Not only will the discipline and practice serve you well when you are reporting to your next level of investors, it will also polish your presentation when looking for your next capital partner.  (NOTE:  Unless specifically requested, don't formally report more frequently than you have agreed.  Use informal meetings by phone and lunches to exchange ideas and important interim information.)

What Should Be Reported

In addition to the standard financial information and analysis typically required by an investor, there are several key areas that you should present.  Market information and how your company is faring in the marketplace will give them a sense that you are in touch with the market and your competitors.  Closely related to this area will be your product development and planned life cycle.  This, too, is indicative of your knowledge of the market and trends.  Wrap this information around a discussion of your business strategy - the vision and execution plan summarized in a single piece.  Finally and critically, let your investors know ahead of time about any bad news - downgrading of operating results, lawsuits, loss of key employees - any material information which will have a negative impact on the value of your business or the security of their loan.

The Price You Can Pay

Investor reporting is as important a part of your business reputation as your products and customer service.  The price you pay for not reporting promptly or adequately may be steep.  Look to the recent public stock markets to see what happens when a company reports financial results less than (or even the same as!) analyst's projections or has an unforeseen negative event.  It is not uncommon for them to lose significant percentage of enterprise value in a day.

While the stock market is unusually volatile, it is an indicator of how one type of investor's reacts to bad news - and how it impacts the enterprise value of a company.  While private companies are not likely to be subjected to that level of volatility, the loss of management credibility by not reporting promptly can be as damaging to your business as a bad quarter can be for a Fortune 500 company.

Management credibility is the key asset in any investor relationship, so treat your investors like the business partners they are.  They are not only a capital resource, they are an information resource.  It is a good idea to open communications with them - and keep them open.