The secret to an effective stakeholder management strategy is the secret to any great relationship: Frequent and open communication. Studies show that 83% of investors believe companies that communicate effectively also perform better, and 77% of investors are more likely to offer help to companies that communicate. It’s undoubtedly the key to keeping investors confident and happy with your performance.
But if communicating effectively were so easy, everybody would be doing it. Instead, many busy fund managers leave their limited partners (LPs) blowing in the wind, making them wait for an annual report to find out what’s happening with their money. Fund managers close deals, take their money, and move on instead of cultivating a real, ongoing relationship with their investors.
This means that if you can unlock the power of good communication with your LPs, you’ll stand apart as a competent and trustworthy fund manager. Below, we’ll go over how regular investor reporting, annual investor meetings, and in-person meetings create mutually beneficial relationships with your investors.
Communication: A critical component to every stakeholder management strategy
Communication is the foundation of any successful relationship. The relationship between you and your investors is no different. By giving you their money, LPs are bestowing an enormous amount of trust on you and your organization. This is your opportunity to illustrate that you’re worthy of that trust by being competent, transparent, and communicative.
Effective communication from fund managers to their limited partners helps build and nurture those relationships. Over time, regular communication will establish familiarity and investor confidence — two key components to successful future fundraising attempts.
Frequent open communication makes you appear more trustworthy and helps you keep control of the narrative you tell your investors as you tailor your discussion to present a larger story. Instead of just hopping on their radar when something monumental is happening, you’ll have well-established communication channels that ease the blow of bad news.
This change management component is key: Change disrupts routine and can create uncertainty — not ideal when you’re looking to secure more investments. Fund managers need to proactively look for ways to not only communicate change but also mitigate adverse reactions to it. It’s important to demonstrate that you’re on top of the portfolio while proactively looking for ways to grow in the future.
How to facilitate open communication with stakeholders
So what does frequent communication look like in this context? You don’t need to be chatting on the phone with your LPs or sending them daily emails. You don’t need to provide a 24/7 helpline or be constantly on call to answer questions. That’s not helpful or feasible when managing hundreds of investors.
Instead, we will show you the most effective ways to keep LPs informed and encourage them to stay invested in the fund’s progress past the point of their initial buy-in. Communicating on several different platforms at different frequencies allows you to stay top of mind, avoid overwhelming LPs with information, and create deeper and more profitable relationships.
Create real relationships through in-person meetings
Face-to-face communication allows VCs to build deeper interpersonal connections with LPs. In-person communication and requests are 34 times more effective than those sent via email, and more than 80% of business executives prefer in-person meetings. And while annual meetings are an opportunity to communicate face-to-face, there are so many people, and it’s over so quickly.
More intimate meetings with your LPs create more opportunity for face time with real relationship-building. Every six months or so, it’s a good idea to arrange an in-person meeting with each LP.
Kauffman Fellows writes: “Prepare a series of slides updating LPs on the firm, with goals and expectations for each portfolio company…Use a green, yellow, or red light denoting each company’s progress while highlighting how you helped each company. Then, show those same original slides at each in-person meeting in tandem with updates. This will help the LP see movement in your portfolio over time, and will also help highlight your catalytic impact on your companies.”
Create an LP portal
Keep your LPs informed by creating an online reference library of past investor reports and other important information that they can refer to as needed. This not only helps with fundraising and due diligence but also can give your LPs a place to verify facts or track changes.
Some things to include in your virtual data room for investors:
- Past investor reports
- Detailed information about portfolio companies (Sapphire Ventures has a detailed data room template that you can use to organize and share portfolio company information.)
- Your fundraising deck
- Ongoing financial details of the fund, including investment value, carrying value, net cash flows and previous LPAs
DocSend Spaces can help you create a simple and effectively organized virtual data room for your investors.
Share detailed performance insights via investor reports
Investor reports show detailed information about portfolio performance for a given period. It’s important to note, though, that investors spend the most time on the financials section, so pay extra attention to this information.
Your investor reports can (and should) display information in multiple formats: Written, graphics, visuals, board meetings, email, in-person, video call, etc. Investors are busy people; if you can make dense information more digestible with complementary visuals, it’s always a good idea to do so. Help your investors visualize ROI.
Collin West and Nihar Neelakanti of Kauffman Fellows interviewed Ahoy Capital founder Chris Douvos, who recommends putting investors’ interests before your own when developing communication strategies. They write:
“The best communication with existing LPs helps them calibrate the things they care most about when making an investment: How much money are we going to get back, and when are we getting it? [Douvos] believes that the best quarterly updates and in-person meetings should contribute to an ongoing movie-like narrative, rather than portray a single scene.”
Rather than just focusing on the what, tell the story behind the why and the how.
It’s important to stick to a consistent schedule and format for your investor reports. This creates predictability and makes it easier for investors to get the information they need — and it makes it easier for you to commit to in the long run.
Build community with annual investor meetings
Annual investor meetings are exclusive gatherings among firms and LPs where the firm provides important updates and nurtures investor relationships. Typically, a firm will fly LPs out to their city and have an all-day event with a little schmoozing and plenty of opportunity for networking. While many do this annually, you could also consider a biannual or even quarterly cadence.
Annual investor meetings are a great way to facilitate communication among LPs as well as with various members of your firm. Meeting face-to-face with investors can help you gain social credibility and trust. The opportunity to meet other people in your firm beyond just their personal fund manager helps to build more diverse and stronger connections that can lead to more investments.
According to Laura Thompson of Sapphire Ventures, there are three core components to annual investor meetings:
- Content: It’s important to be open and honest. Talk about the portfolio, the team, the strategy, the environment, the operational value-add, and the fundraising.
- Format: Mix up the format but remain true to your firm. Bring in your general partners (GPs) and portfolio CEOs.
- Logistics: Consider scheduling, attendance, location, length of meeting, food, and swag — it’s a tall order to organize a meeting with tons of VCs.
Remember to use annual meetings to nurture relationships and reinforce the overarching narrative you want to tell about your firm and its future.
Communicate with your stakeholders via DocSend
No matter how you are communicating with LPs, it’s crucial to keep your confidential materials secure. DocSend makes it easy for VCs to create and share sensitive materials with LPs while getting real-time, actionable feedback on how investors engage with their documents. With DocSend, fund managers can analyze the effectiveness of investor communication and determine how to improve it.