(Editor’s note: Pete Bodine is a managing director at Allegis Capital. He submitted this story to VentureBeat.)
The right level of communication and information flow for a startup changes as it evolves and is always challenging, but it’s imperative to have a communications strategy for shareholders at all stages of a company’s development.In the earliest stages, communication is pretty easy and straightforward. With just a founder or two and a few angel investors, regular communication is natural. You don’t even have to think about it because it happens with ease. But as time passes and venture capital rounds increase your investor base, the amount of communication with shareholders tends to become less frequent.
For a while, that’s not a problem. But things can – and will – change.
Let’s say another company wants to acquire yours and you suddenly need approval from the majority of your shareholders, some of whom aren’t up to speed about the company’s progress. At this point, those communications with your shareholders that used to be so easy may become extremely challenging.
As a manager, you might be comfortable that an acquisition is the right way to go. But if you need 80 or 90 percent of your shareholders to agree with you and haven’t kept in touch with them, it won’t be easy to convince them. Shareholders, at that point, are disinterested and may not believe the transaction will materially benefit them.
Unfortunately, it’s often too late at this stage to start educating them about why this is the right course for the company. And you may lose the deal because of poor communications.
Communicating well with shareholders doesn’t mean you need to provide detailed business plans and forecasts to everyone on a regular basis. But annual or semi-annual updates to your board are a good idea, regardless of your size.
One of the best communicators around is Amazon CEO Jeff Bezos. This 1997 letter he wrote to shareholders is a marvelous example of how to talk to – and with – investors.
Among other things, he said Amazon may make decisions and weigh tradeoffs differently than other companies because of its emphasis on the long term, an uncommon view for a CEO for that timeframe. Then he went on to describe the company’s priorities in nine bullet points – not 50. It was a concise and effective way to get his point across.
Further, he didn’t exaggerate how well things were going and he wasn’t afraid to discuss Amazon’s challenges. It’s a philosophy that’s worth emulating, since this type of communication will pay dividends in the future. When your startup hits a speed bump – and startups always do – your investors will absorb the news much better.
In your communications, you don’t have to be this detailed and you certainly don’t have to incorporate all the financial data points that Bezos did. But he did elaborate on his company’s direction and vision – and that’s what your note should do as well.
While your startup might be a small shop now, it’s important to developing a strategic communications policy early. If you’re one of the lucky ones who eventually sees your company go public, you’ll be required to communicate with shareholders – and you’ll know what you are doing.