Investor relations is the management of communication between your company and its current (and potential) investors. The goal of IR is to provide accurate, timely, and transparent information about your company. This helps your investors make informed decisions.
Investing in a new business is a risk and interested parties will want to see evidence that your business plan is viable. Good investor relations can help stakeholders decide whether to stick with a startup through uncertain times or make money available for growth.
What is the importance of investor relations?
IR is crucial to the success of a business as it helps to establish trust and credibility with investors. This is especially important for new companies, which rely on investors for financial support and growth.
Higher level investors will need in-depth communication of business strategy for both the long and short term. By using an IR team to manage investor relations, your business can communicate effectively and consistently with all stakeholders. This helps increase your company’s investment profile, making it a more attractive buy-in.
The primary functions of investor relations:
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Communicating with investors
This includes providing information about your company’s financial performance, strategy, and future outlook. You can do this through various channels, such as earnings calls, annual reports, and investor presentations.
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Managing investor events
This means hosting events such as investor conferences and roadshows. Events like these provide opportunities for investors to interact with your company’s management and ask questions.
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Providing guidance to management
IR professionals often work closely with the company’s management team. They make sure that the information provided to investors is accurate and reflects your business’s strategy and goals.
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Monitoring and analyzing investor sentiment
Tracking the reactions of investors to various events and announcements lets you gauge the sentiment toward your company or its policy. Sentiment analysis helps your company understand how investors perceive your actions and make any necessary adjustments.
Why communicating with investors is vital for new businesses
Clear communication with investors can help reduce the risk of misunderstandings. This is why many established businesses use an investor relations team led by an IRO. A focused and consistent strategy maintains confidence among investors.
Unclear communication strategies create negative sentiment towards your company. This is often a problem for new businesses who don’t have the experience of dealing with external investors.
As a new business, you’re more vulnerable to negative investor sentiment. Without a proven track record to back you up, investors will need consistent reassurance of your positive performance.
Image sourced from Enterslice
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Strategic communication
Identifying the key messages that your company wants to convey and the best channels to put them on is key to managing investor expectations.
For example, you may hold an earnings call to provide an immediate overview of your financial performance and answer questions. But, if you want to give more in-depth information about the company’s financial performance and future outlook, you might release an annual report.
If you miss these basics as a new business, investors will move on to more attractive options. Sourcing investment is as competitive as the market you operate in. Even as a startup, your investors will expect regular communication as well as dependable online resources.
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Grow your investor base
By providing accurate and transparent information about your business, you can attract new investors. Speculative investors who may not have been aware of your company will appreciate accessible investment information.
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Stakeholder confidence
By engaging in open and honest communications with investors, your business can increase the confidence of your existing investor base.
Communicating consistently proves your commitment to transparency and accountability. This builds trust and confidence in your company’s leadership and direction.
Best practices for developing investor relations management
If you’re developing an investor relationship management strategy for a new business, start with these best practices.
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Get to know your investors
One of the key elements of effective IR is understanding the needs and preferences of your investors. You need to understand their investment goals, risk tolerance, and information needs.
Some will be happy with an overview; others will want in-depth details. By understanding your investors, you can tailor your engagement strategies to better meet their needs.
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Be open and proactive
Be open and proactive in your communication. This means being transparent about your financial performance, strategy, and future outlook. It also means being responsive to investors’ questions and concerns.
Getting ahead of perceived problems with proactive statements and solutions builds trust and credibility with investors. By discussing major policy and directional strategy decisions s, you can deal with potential issues ahead of time.
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Use digital tools and software
Client management software can help you track and manage investor interactions, as well as manage the flow of information between the company and its investors.
If you’re already using self assessment tax return software to manage your finances, some options come with client management software built-in.
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Use data to back up your insights
When communicating with investors, it’s crucial touse data that backs up your insights and claims. They want to know that you have a solid understanding of your company’s performance and prospects.
Investors’ trust in your leadership can be as important as your financial health. As you can see below, 49.7 percent of new businesses fail within their first five years. Effective management can make the difference between success and failure.
Image sourced from LendingTree
You’ll need to analyze and report data from across your business. This will be easiest if you’re using interconnected software solutions—for example, a CRM for customer behavioral information.
You also need to demonstrate that you’re on top of all changes within your industry and the regions you operate in. This could mean reading up on MTD for accountants if you’re based in the UK or state tax changes if you’re in the USA. Being able to confidently present investors with accurate and up-to-date information will go a long way in securing their continued trust and funding.
How to measure the value of investor relations
The impact of your investor relations on your financial performance isn’t always clear. Here are the best ways to estimate the value of IR.
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Share price volatility
One way to measure the ROI value of IR is to track the performance of your company’s shares over time. If the share price is erratic, it may mean that your company’s investor relations efforts aren’t going well. It’s not a one-to-one relationship, though, so don’t discount other factors.
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Investor sentiment
Another way to measure the value of IR is to track investor sentiment. You can do this through surveys or by analyzing investors’ reactions to various announcements. Positive investor sentiment indicates success, but other concerns like financial performance will play a part.
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Investor loyalty
Measuring the loyalty of your company’s investor base can be an excellent way to judge the value of IR. If your investor retention rates are high over the long term, this is a good indicator that your company’s IR efforts are successful.
Final thoughts
Investor relations are a vital component of the success of any business. It’s especially important for startups. You’ll often rely on investors for financial support and growth, and those investors will have different opinions and needs. Learning how to manage those relationships will be a crucial part of growing your business.
