How to make the most of your investor relationships in 2023

For founders winding down from a challenging year and planning for the new year, this is an excellent time to reevaluate your relationships with the investors you work with.

I am fortunate to be able to work with almost a dozen early-stage startups directly and get to observe the interactions between several dozen investors and founders. From all this, I have seen some founders do a better job than others tapping their investors’ strengths and wisdom while watching out for trouble.

What can founders do to revitalize their relationships with investors? Here’s a short list of dos and don’ts gleaned from what I’ve learned over the years:

Know your investor

As in any long-term relationship, knowing who you have chosen to work with is vital.

Investors, like all people, have distinct personality traits and sometimes associated shortcomings. This can be hard to gauge initially, but make sure you don’t ignore it.

Here are some examples of personality traits I have seen and how founders can learn to work with them:

• Some investors could improve at follow-through. Maybe they have made too many investments and need more time, or they are just scatterbrained. No matter the reason, if you need something from them, it is your job to be organized about your requests and then regularly follow up.
• Some investors react too sharply and unproductively at the first sign of weak business performance. They may see doom and gloom everywhere and echo every negative market sentiment. It is tough to have a balanced and open conversation with such people. It is best to have a few well-thought-out options written down before engaging with them.
• Some investors may have a huge ego that will surface when you disagree with them. This trait is the toughest one to deal with, because any discussion is not based on substance but on power dynamics. If you have such an investor, make sure to have fact-based talks and draw the line (often and early) about whose decision this will be.

Tap investors for breadth over depth, but be careful how you do it

If you have an investor actively investing and engaged with their portfolio, they will be well versed in market and industry trends.

They can be a valuable source of information for questions such as:

• How are other companies at my stage growing annually?
• Who is the best sales recruiter for a B2B software company?
• What valuations are companies at my stage getting?
• What is the sentiment about investing in my space these days?

However, founders may want to have deeper conversations with their investors. Here is a typical example of a deep topic and some practical dos and don’ts:

If you want to know whether top-down or bottom-up GTM makes sense for your business, don’t just ask an investor this question as-is. Investors may dole out platitudes like, “Yeah, of course, product-led growth is the way to go these days” (commonly heard in the recent past), or “We need a strong sales-led motion for this thing to take off” (you can hear this these days).

Instead, first lay out the possibilities using facts from your business and industry data.

For example, most infrastructure tools still need to be available via a self-service option so that a sales rep can drive a deal to closure without endless meetings with different stakeholders. Here, you could consider how often you’ve required sales to open a door before users try the product, who else in your industry is generating strong conversion and what their GTM motions look like.

Bring facts like these to your discussion with investors. You may still get a prescriptive answer like, “Do both,” but more thoughtful investors will listen, ask any other substantial questions you may have left unasked and then help you arrive at the answer yourself.

Ask for help, but don’t assume investors will help you in the same way

Knowing your investors’ portfolio, prior experience and focus can help you effectively tap their strengths and areas of expertise.

Here are some examples:

• If most of your investors’ portfolios have pursued product-led growth as a GTM approach, it would be helpful to ask them how that has recently impacted profitability.
• If your investor has been a VC for a long time, they may know many CFOs, lawyers, accountants and other VCs who they can introduce you to. Take advantage of that.
• An investor with a recent background in product may prove to be adept in helping you find product-market fit.

It is best not to expect every one of your investors to have the same know-how or network. Channel requests to the right individual rather than make a broad ask.

Use communication channels that best suit the context

Founders who make the most of their investors tend to tap them between board meetings via the right channels and at the correct frequency.

Here are some examples of contexts, and the frequency and communication tools that best fit each scenario:

• A senior executive is leaving or needs to be let go: Communicate this quickly via a short message on Slack or a text-messaging service.
• Your sales pipeline for Q1 looks awful: Discuss this in a meeting armed with a well-thought-out diagnosis and some future options.
• A significant customer has churned: First, communicate this quickly via a short message. Follow up with a detailed diagnosis and remediation plan discussed live and shared asynchronously.
• An acquisition offer has come in: Call for a brief meeting to discuss it live.
• A significant milestone is achieved (customer win, product launch, angel investment, important hire): Communicate this via a short asynchronous message. Give your investors a chance to rejoice in your wins, too!

While the right level of communication is critical for preserving a good relationship with your investors, be careful to prevent it from becoming a time sink. Pointless recurring 1:1s used merely for status updates rather than discussions or lengthy email threads are all signs of ineffective communication.

Be ruthless about how you spend your time, especially with your investors.

Use board meetings to discuss topics and decisions, but learn when to delay answers

Much has been written about running board meetings, so I won’t go too deep into the topic. Instead, here’s what you should do and what you shouldn’t:

• Provide accurate and detailed historical reporting, including, but not limited to, the financials.
• Identify critical strategic decisions that need to be made, but don’t bring them up without laying out the facts and options used to make those decisions.
• Provide forward-looking guidance and as much data as possible to support that guidance.
• Agree on an agenda ahead of the meeting by sharing historical updates and forward-looking plans.
• Don’t feel compelled to answer questions that may be irrelevant or unimportant to the current agenda.

If your relationship with your investors is less than optimal, there is always time to improve it if both of you intend to do so. If you are thinking about changing things dramatically, consider initiating the conversation by saying something like the following:

I’ve been thinking about our interactions in the past year, and I believe that it will be helpful to do some things differently in the coming year so that we can focus on building the most valuable company possible. When would be a good time to hop on the phone and discuss some of the changes I am contemplating?

A new year is always a great time to hit that reset button!