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Monday, February 17, 2020

Corporate Commentary

Impact of Investor Management on Business Growth

business executives

Every organization addresses the investors into its business differently. The relations depend on stages of business, the impact of investors on the decision-making process, strength and conviction of the Management to make decisions and drive actions. However, whichever stage of evolution and maturity the organization would be in they should always value and keep investors engaged with the business to gain maximum mileage of their experience and network.

To begin with, why would the investor perception and sentiment be important for the organization?

In any organization, at an early stage, every business is nothing but a unique idea in which a bunch of people has a conviction on building further and devoting their time and efforts to have a mutually fulfilling growth. The idea needs to be backed by capital and this is the first stage where the business first sees its investors. These are the people who put in a value for the business and then invest top Dollars to roll out the plan. In many cases of entrepreneurial ventures, it could be the promoter himself. The investor relations in multiple such cases are more hands-on, closely knit with close monitoring and involvement. Actually, we will see that the quantum of investments generally may not be the defining parameter of investor involvement always.

Investor Lifecycle

Like in the case of Individuals, the corporate Investor lifecycle also typically sees investors going through three basic stages in their investment.

Stage 1: Would be the accumulation Stage

Stage 2: Would be the consolidation Stage

Stage 3: Would be Exit and profits

While the length and complexity of each stage and the risk appetite of investors will define the time frame for investment, every business needs to keep in mind that they will need to manage the investors differently through each of these phases as the requirement both emotionally and financially will differ for the investors depending on the phase of investment they perceive themselves to be in. For example, the patience level for an investor who perceives himself to be in the Exit phase could be far lower and the sensitivity towards any negative news would impact the investor decision far more than an investor at an early stage.

Investor management during the Accumulation stage:

Many companies do not have a formal investor relations process in place until they’re actively raising money. But the real work in nurturing your investors takes place before and after you accept capital. Staying top-of-mind with prospective investors to ensure all opportunities get exposure and none slip through the cracks. A well-prepared investor relationship strategy forms the foundation of a successful business development plan. Companies should be nimble at this stage, adapt technology and network, as investors today tend to invest with companies that respond rapidly to changes in business models and adopt the technology. But adopting technology is only half of the battle; connecting with and updating investors on recently implemented changes is also an essential step. As such, Investor Relationship Management plays a key role in securing repeat investments at this stage.

Investor management during the consolidation phase

Some of the best practices which need to be followed at this stage can be summarised as under.

  • Keeping current and potential investors up to date by supplying the information they care most about and in a timely manner
  • Ensuring time management and relevancy of information shared
  • Create a calendar and sticking with it is i.e. whether you choose to update your investors monthly, quarterly, yearly.
  • Relevant: Keeping Information relevant the number one component to maintaining healthy relationships is communicating and making sure your investors have upto-date information. One of the best ways to do this is to send out periodic updates to investors and potential investors.
  • Avoid over communication:  Send updates that pertain to an investor’s specific portfolio or interest.
  • Transparency: Investors appreciate transparency so don’t be afraid to share updates across both ends of the success spectrum.
  • Consistency: Communicate consistently and stick to a routine and do your best to not miss a communication update.
  • Visibility: In addition to a consistent timeline, it’s important to stay visible and available to your investors. If you’ve reported a mixed quarter, maintain a dialog with those investors who want to be reassured by the senior management that you are on top of managing the company.
  • Responsive: Do your best to be quick to respond.

 

Investor management Exit Stage:

Investors may decide to sell their investment and exit a company. Alternatively, the company’s management can buy the investor out. Other exit strategies for investors could include the sale of equity to another investor – secondary purchase, IPO or even liquidation. Sometimes investors may decide to not sell all the shares they hold. The most critical aspect in an exit is the valuation, the exit value of a company must be mutually agreed between all parties, and will depend on the type of operation, the number of shares sold, the original valuation of the company.

Investors have either a limited lifespan – usually 3 to 5 years – or they can have a long term strategy to stay invested as they have the capital to invest.

Usually, at the exit stage, the Investor management and relationship will be at the closest. The organization would be dealing with various exit options and valuations. There could arise a sense of insecurity, non-transparency at this stage between parties. This could also be fuelled by external factors, media reports, grapevine, and rumors, etc. This is a stage of active involvement and over communication with the investors to ensure all stakeholders are on the same page and wavelength. The group as a whole should be aligned so that all are aware that the decisions taken are consistent and in the best interest of the valuation and exit. Media plays a strong role and it is important that it is handled maturely with clear directions and media interactions with a single point of contact usually the promoter. Investors should abstain from communicating directly to the media.

Given the importance of investors to the business, they are both friends as well as co-owners and as such need to be treated with a high degree of respect, professionalism, and transparency. If the business owners appreciate the life cycle of the investors and based on the phase plan their investor relationship and management strategy they would have a great Investor relationship going for them which eventually would be seen in both the companies performances and valuations.



Vikas Chadha
Vikas Chadha is the Group Chief Financial officer at the Ampersand group. It provides education across prominent boards – CBSE, IGCSE, CIE under the brand "Vibgyor," a premium brand catering to 50,000+ students across 34 schools across India. His last assignment was as the Executive Director and CFO for Los Angeles based Berggruen group for their hospitality vertical in India run under the brand "Keys Hotels." Professionally Vikas is a qualified Chartered Accountant from the Institute of Chartered Accountants of India and Cost Accountant from ICWAI; he has 22 years of experience in finance, business planning, Banking, Treasury, Fund raise, and strategy. Vikas Chadha is an opinion columnist for the CEOWORLD magazine. He can be found on Linkedin.
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