Whether it be for building a skyscraper or for taking a company public, investors and their willingness to invest capital is one of the most important components to the success of any business. Irrespective of their size, all investors give us their trust before they give their capital. Thus, it’s important for general managers to master the art of gaining and keeping investor trust to thrive.
How to gain investor trust?
Investors crave clarity on pertinent details like WHY this opportunity, the sponsor’s experience/competence, business plan, and risks. Investors like to invest with someone predictable and with whom they have a relationship. Hence, to earn investor trust, sponsors must focus on building a relationship with investors, understanding their needs, as well as being competent, consistent, transparent and predictable.
Why is it critically important to gain investor trust?
Every company that wants to further its business goals and objectives needs access to reliable investor equity, without which growth would be stunted and opportunities missed. Investors can make investment decisions analytically or emotionally, but either way, they must trust the general manager first before anything else.
Seldom does an investor take a chance and invest without building trust first. If trust is not earned or kept, business prospects will begin to look grim in the long run. With that in mind, here are seven ways a general manager can earn investor trust and keep it.
1 – Showcase subject matter expertise and domain authority
The equity marketplace is crowded. Not a week goes by without an active investor being solicited by someone asking for an investment. How will an investor know why they should invest with you? The best means to build investor trust and confidence is to regularly showcase interesting, educational and engaging content on happenings in your industry and company.
Video, blogs, podcasts, social media posts are different ways of reaching your desired audience. Talk about the issues you face, how you solve them, changes happening in the industry, the people that you work with, etc. This slowly but surely lets potential investors know more about you, your investing style and your operations, which will make them more receptive to your investment offering and improve your brand recognition.
Empower them with knowledge
Don’t merely give your investors fish; instead, teach them to fish. Empower your investors with knowledge of your industry and help them reach a point where they can vet any offering they’re considering, not just yours. This can be done via newsletters, blogs, Webinar sessions, in person walkthrough of the properties, e-book’s, YouTube video’s etc.
You’re solving a problem for them and helping keep them from getting into wrong investments, thereby saving them a ton of money. This shows that you’re generous with knowledge and will build enormous investor trust and good will.
2 – Be clear and straightforward
In this age, an investor has access to a plethora of investment opportunities. There’s a lot of noise and chaos, and vetting an opportunity can be confusing and challenging for an average investor. Some companies employ the “FOMO” (Fear of Missing Out) technique to hurry investors to make a decision before they get a chance to vet the deal. Others make investors bid against each other to get them to up their investment amount.
These techniques may work once, but leaves investors with a bad taste and will not help build trust. If you want to earn investor trust, stay away from enhanced sales tactics and focus on basics. Above all, make the opportunity clear and easy to understand. Achieve this by following the best practices below and let an investor freely decide with a comprehensive understanding of the opportunity.
- Provide a comprehensive but easy-to-digest offering material
- Provide an executive summary
- Summarize the salient points
- Provide a “Take Away” when technical information is provided
- Provide an Appendix section with all relevant documents to aid in vetting the opportunity
- Provide FAQ’s
- Don’t dwell too much on headlines and dive into the data backing the opportunity
- Conduct a live webinar
- Hold a Q&A session in the webinar and answer every question, even hard ones, openly
- Bring up hard questions which investors didn’t ask and answer them
- If you don’t know an answer to a question, say you will get back to them
- Talk about both opportunities and risks
- Clearly state the timelines, minimum investment amount and stick to them
- Make them feel comfortable directly reaching you offline to ask further questions
- Talk to investors objectively and leave out the salesy pitch
3 – Use SEC Offerings
When raising money from “passive” investors, we are required by SEC to employ one of its Reg D exemptions under Role 506. While it’s easy and cost-effective to forgo an SEC offering or a PPM (Private Placement Memorandum) for a simple limited partnership agreement to raise money, this opens the sponsor to unnecessary liabilities and deprives investors from vital disclosures in a SEC offering PPM. This will help no one and must be avoided.
When we use a SEC Regulation D exemption offering, we’re following security laws and staying above board. SEC is notified that you’re raining funds, state governments are notified that their citizens are investing in your offering, and investors get a full list of disclosures in the PPM which helps them assess their risk tolerance before investing, building investor trust.
4 – Disclose, a lot!
Put the disclosure section of your offering documents to the best and highest use by disclosing all details that you would want to know as a passive investor. Disclose the risks, the fees, the affiliate business relationships, the broker compensations, etc. Eliminate surprises and gotcha moments that are highly detrimental to your relationship with investors and keeping investor trust.
5 – Be fair and transparent in structuring returns
When structuring offering returns, simplicity is key. Structure the returns in such a way that a fifth grader can understand. Investors expecting a fair return at the market level and proportional to the risk they’re taking compared to other low-risk alternatives. Avoid complex waterfall structures, catch up sponsor compensation, investor buyout provisions, and provisions that don’t allow the investor to participate in the upside. These will definitely break investor trust, with investors feeling they’re being treated unfairly. Structure deals in such a way that when things don’t go well, investor capital and returns are protected first. Sponsors need to keep in mind that passive investors are not at the wheel; they are mere passengers, trusting you and your ability before they write that check. Every sponsor should feel the weight of that responsibility on their shoulders and be good stewards of investor capital and their trust.
Be transparent & take responsibility
Rarely does everything go smoothly in business. Transparency is essential when dealing with investors, especially when things aren’t going well. The last thing a sponsor wants is to keep his investor in the dark, letting their worries fester. Be confident and articulate when delivering bad news, but have a plan and timeline on how you plan to get the business back on track.
Successfully navigating hard times will only build investor trust in your abilities and integrity. It shows how you’ll stand and fight, rather than run away from problems. No matter who drops the ball—another partner, or a vendor—always assume full responsibility and never shift blame. Investors looked at you while writing that check.
6 – Be responsive and approachable
As they scale, businesses become bigger and start adding layers of staff between the investor and sponsor. While it’s important for a business to scale staffing and delegate, a sponsor or his qualified representative should always remain responsive and approachable to an investor. Investors should never feel like we’re too big to give them the attention they deserve.
Consistency is key
Investor relations should be treated like the important business process it is. Every business must take appropriate measures through staffing, communication plans, and automation to build consistency into the investor experience. Delivering investor updates, tax documents, account administration, and answering questions should be performed in a timely and consistent manner. Every interaction is an opportunity to build investor trust and validate their decision to invest with you.
7 – Set the right expectations and exceed them
Nothing breaks investor trust like an expectation not met. Sponsors should be consciously setting accurate expectations for investors in every aspect of the deal, leaving nothing to investor imagination. Whether it comes to investor returns, communication, risks associated or timelines, it’s best to err on the side of caution and leave room to not only meet but exceed investors’ expectations. Each time we exceed investor expectations will only increase their trust and strengthen the relationship we have with them.
Word of mouth
Assuming a sponsor has built a strong relationship with his investors and delivered on the expectations he set to them, enjoying their trust, the sponsor has earned the special privilege of asking investors for a referral. Word of mouth is a potent marketing strategy and much more effective than paid marketing. This will not only help the sponsor grow his investor base but also allow him to start relationships with new investors on a strong footing, expediting the relationship-building process as the trust from your existing investor carries over to the new investor.
How to earn investor trust, in conclusion
Investor management and gaining their trust is difficult, but not impossible. It depends on the commitment of the sponsor and how serious he is about building strong relationships with investors. At the end of the day, investors are humans like us and have needs, aspirations, limitations, and curiosity.
Sponsors should always value the investors who help him achieve his personal and business goals and be compassionate and attentive to their needs. Simply put, treat your investors like how you would like to be treated if you were in their shoes. To help with that, see here 6 tips we prepared for you to use in Email Marketing Campaigns that attract High-Net-Worth Investors.