In the first part we saw how the startup studio model differs from traditional venture capital, and how Investor Relations acts as a Platform Manager able to turn investor profiling into strategic positioning for the fund. In this second part we look at timing, at communicating bad news, and at how to turn investor access into lasting value.
The second challenge: timing
And here we are at the second challenge, for fund managers and investors alike: timing. When is it too late, or too early, to approach an investor? And can communicating a company’s performance to its investors ever be too much? There are several standardised reporting practices in IR, but what really matters is defining key objectives, the strategy to reach them, and staying true to the growth projections. Every subsequent report should confirm the previous objectives and projections; when there is a misalignment, that is where IR must be ready to explain the nature of the deviation and what is being done to put the business back on track.
The law of scarcity: communicating below-expectation performance in a timely way
Investor Relations must make sure that LPs are informed in a timely manner and that the bottlenecks that will inevitably arise are addressed without delay. Nobody likes delivering bad news, but sometimes it is not just necessary: it is essential.
Here is one way to think about delivering bad news. A few years ago I came across a passage in David Eagleman’s book, Incognito: The Secret Lives of the Brain. It may sound like a stretch, but I personally found this point fascinating. A study of parole decisions found that judges were significantly more likely to grant parole after lunch than later in the session, suggesting that even decisions we consider rational and deliberate can be influenced by something as simple as blood glucose levels. The lesson is surprisingly relevant to investing, as well as to the moment we share good - or bad - news: timing matters, because the person listening, who has to deliberate on the next steps, matters too. Ask for an open mind on a full stomach, and try to deliver bad news with a pinch of good, to soften the blow.
In private markets, timing is a form of access: an opportunity is only valuable if you are ready to recognise it and act the moment it arises. Investors know this, and they also know that time is a mysterious and sometimes serendipitous element, almost essential, that should always be at the heart of the business. You can spend an inordinate amount of time convincing someone, but if the timing is not right, no amount of somersaults to build your case will tip the scales in your favour.
Investors also know that capital does not guarantee access. When the most sought-after funds and deals are oversubscribed, scarcity shifts the balance of power: investors are no longer simply choosing where to invest, but competing for the right to take part. It should be a great relief for investor relations, senior management and founders to know that, if an investor is on the cap table, their position is special precisely because of the law of scarcity; and that communicating that position, and that conviction in the fund’s strategy, in a timely and transparent way is the real hallmark of a successful Investor Relations strategy.
After the investment: turning access into long-term value
Once an investor has joined the fund or invested in a single startup, IR should see the months and years that follow as the moment the real heavy lifting begins: consolidating the investor’s decision, communicating the strategy convincingly, and making sure that every investor able to add strategic value is put in touch with the founding team at the moment that value can truly make a difference.
And once a fund or a round has closed, Investor Relations is crucial in communicating with those investors who were not so convinced about investing at first. Creating FOMO is key and, as an ongoing responsibility of the role, over time it will turn non-believers into believers, making future fundraising cycles progressively shorter and attracting those investors who had preferred to wait and see how the first cycle went.
How to make investors come back, again and again
Some say investors are greed-driven, others argue they should be patient. But greed and patience rarely go together, and this is my reading of what all investors have in common, even though no two investors are ever alike. Generally speaking, smart money investors are hopeful dreamers. That does not make them naive. If anything, it makes them trailblazers. Every trailblazer knows the effort, knows the hardship and, above all, knows the risk. It is easy to see where the risks are today, or perhaps where they will be in six months. Diving into the unknown is inevitable: after all, that is what life is, at its very core. What sets a truly exceptional Investor Relations strategy apart, for me, can be summed up in two words: consistency and reliability.
So if there is one lesson I would give to any small fund operating in early-stage investing, it is this: Investor Relations is a function that should be seen as a strategic gateway to amplify the growth opportunities of portfolio startups, creating synergies that would not otherwise exist. Standing at the intersection of the studio’s senior management, founders and LPs means holding a position that requires curiosity, a knack for match-making and a certain talent for communicating convincingly, able to turn investor appetite into your flavour. Pun intended.