Investor relations: How to build trust, confidence, and great relationships

Investor relations is about understanding a company and its investors and building a healthy, mutually beneficial and trusting relationship between them. Key to achieving this kind of a relationship – and the confidence of your investors – is ensuring that you’re communicating with your investors regularly to keep them informed about the  company’s financial results, plans, and any relevant news.  

Here, we explore how to build great relationships with investors with an investor relations strategy and best practices. We’ll also examine the role of the CFO in maintaining investor relations and how technology can make that easier.

Have a strategy for building great relationships

An effective investor relations strategy must be comprehensive in terms of understanding the kinds of investors you want for your business and how to work with them effectively.  

Here are some of the key questions you should ask yourself when thinking through your investor relations strategy:  

• What’s making our competitors more appealing to investors, and how can we improve our position?
• How do we turn our business strategy into a compelling and unique story that attracts investors?
• Do the investors we’re attracting truly believe in our long-term vision?
• Are our investors confident in our growth plans, and if not, what do we need to do to gain their trust?
• How can we effectively use what we hear from investors to shape and refine our business strategy?

A well-conceived investor relations strategy focuses on proactive and consistent  communication with current and potential investors and other stakeholders about the company's financial performance, growth prospects, and overall business strategy.

It’s also important to keep investors informed about upcoming events, milestones achieved, and steps taken to address risks. 

Elements of a robust investor relations strategy

The key elements that you should consider while developing an effective investor relations strategy are:

• Intrinsic value and well-grounded valuation: Figure out what your company is worth based on its potential and strengths, not just the current market price. A thorough analysis of your financial results, assets, and market position is needed to establish a realistic valuation.
• Understand market and investor biases: Knowing the biases and preferences of your current and potential investors can help you tailor your messaging. Use it to address investor concerns and highlight your strengths.
• Target the right investors: Focus on attracting investors who align with your company’s vision, as they are likely to support its growth in the long term. 
• Craft an equity story and tailor messaging: Create a compelling story about your company’s growth and future. Tailor your messaging to resonate with different investor segments and highlight aspects that matter most to them.
• Review investor feedback: Regularly review feedback from investors to more fully understand their perceptions and concerns. Use it to refine your strategy and improve communication.
• Build capabilities: Ensure you have the right team, efficient processes, and the tools to manage investor relations effectively.

Leverage investor meetings to build better relationships 

Investor meetings are a great opportunity to not only engage with your investors but also to build and strengthen your relationships with them.

To ensure you are able to make the most of the investor meetings, your investor relations strategy should include a process for preparing for them.

The importance of being well prepared for investor meetings cannot be understated. You can start by downloading our checklist for board meeting preparation. It works equally well for investor meetings and will help you make sure you cover all the basics.   

Beyond the basics of presenting your performance numbers and other key information, you also need to anticipate the questions investors will ask and have key data ready to present with your answers. This will help to build investor confidence. 

Ask for their feedback, too. Investors have a wealth of experience and can provide incredible guidance when asked. Prepare any questions you have in advance so you can leverage their expertise to help solve any problems you may be facing or help you improve. Investors also have large networks they can draw from to get answers to your questions. 

Remember that your investors have a big stake in the success of your business, so they’re usually happy to help you in any way they can. You just have to be prepared to ask, which we’ll cover in a bit more detail below.   

The critical role of the CFO in investor relations

A CFO is a key link between a startup and its venture capital (VC) investors. Beyond just sharing financial results, the CFO’s main job is to build trust with these investors. When trust is strong, VCs are more likely to open up their networks, offer valuable advice, and be more willing to invest more money in the future.

Here are some key responsibilities that a CFO should take on to build strong investor relations:

• Targeting strategic investors: Identify the most strategic targets who can join in as new investors or board members. You must research potential investors and understand their investment criteria.
• Preparing for investor meetings: Identify the key questions prospective investors may ask during pitches, presentations, and meetings. Craft clear and compelling stories about the company’s future to make a strong impression. Keep the story consistent across pitch decks, press releases, and investor communications.
• Addressing investor concerns: The CFO must understand that different types of investors concerns, such as:some text
  • Prospective investors concentrate more on market size, competitive risks, and valuation assessments.
  • Legacy investors may focus more on dilution risks and potential exit opportunities.
  • New investors care more about the company’s growth potential, management team, and financial performance.

When preparing investor reports, you must address these concerns to make a strong impression.

• Quantifying investor impact: When the company tries something new, the CFO must calculate the potential impact on investors. Communicate the risks and rewards to investors to help them make informed investment decisions.
• Recommend company KPIs: Recommend which KPIs to track and report to investors. These metrics must indicate the company's financial health, growth prospects, and overall performance.

Common challenges between CFOs and investors

Navigating investor relationships can sometimes be a little bumpy. Some of the challenges CFOs may face in their investor relations include:

• Navigating economic volatility: Unpredictable economic changes make sticking to financial plans or forecasts challenging. CFOs must manage these ups and downs while keeping investors informed and reassured.
• Managing expectations: CFOs need to ensure the company’s financial stability in the short to medium term while investors focus on the company's long-term success. Balancing business growth while remaining profitable can result in friction with investors. 
• Ensuring access to company data: Investors need detailed and accurate information to provide valuable advice or support. CFOs must provide the necessary information to investors while maintaining data security.
• Managing time constraints: CFOs juggle daily operations, financial reporting, and strategic planning, while investors often have large portfolios of companies they’re overseeing. Finding time to communicate effectively and align on critical decisions can be challenging.
• Aligning on hiring decisions: CFOs and investors may have different views on hiring and retaining talent. Investors might push for aggressive hiring to scale the business quickly, while CFOs prioritize financial stability and careful budgeting. Balancing these perspectives ensures the company grows while retaining key talent.

Best practices for building successful relationships with investors

The following best practices help effectively manage investor relations:

1. Use investor feedback: Listen to what investors say about your pitch and approach. Consider feedback and make changes as needed to better align with investor expectations.
2. Be transparent: Transparency goes hand-in-hand with building trust with your investors. Hiding a problem from investors is a bad idea. Doing so not only erodes investors’ trust but can also prevent you from leveraging their expertise to help solve the problem.  
3. Be proactive: Business can be challenging. Investors know this. The more proactive you can be in spotting issues affecting your business, the faster you can address them, building investor confidence in the process.  
4. Communicate regularly with shareholders: Consistent communication with investors helps maintain trust. Share updates on company progress and financial reports in the format and frequency that investors prefer.
5. Lead through crisis:  How you react to a crisis can either build or destroy investor confidence in your ability to manage your business. In the event of a crisis,  it’s critical to convey a sense of calm, steady leadership while you look for solutions to the challenges you’re facing.

For a deeper discussion, check out the video below!

Leverage technology to build investor trust and confidence

Trust and confidence is the cornerstone of investor relations. CFOs can help build that trust with clear and targeted investor communications based on accurate financial statements and other data-driven information and insights. 

However, generating all the reports you need to communicate effectively with your investors can be challenging, especially if you’re relying on spreadsheets to create them. Spreadsheets are also prone to error, which makes it hard to have complete confidence in the numbers you’re presenting.   

Financial reporting software can go a long way toward mitigating this concern. Most are able to consolidate data from multiple source systems, not only streamlining the reporting process but also significantly reducing potential human error, allowing you far more confidence in your investor reporting.  

Using a purpose-built financial planning and analysis (FP&A) tool like Drivetrain provides even more capabilities you can leverage for better investor relations. With features such as the ability to monitor financial performance and do variance analyses, you can identify and respond quickly to emerging problems and new opportunities, which will build investor confidence. 

By automating data consolidation, metrics computations, rolling forward actuals, and other complex processes, FP&A software frees CFOs from mundane work, giving them more time for analysis. This allows them to be better prepared to share deeper insights with investors and answer their questions about current and future growth. 

With the data they need for more strategic, data-driven decision-making always at their fingertips, CFOs can easily access the data investors need to trust the decisions they make.   

Here are some of the value-added features Drivetrain offers for helping to build investor trust and confidence:  

• Native integrations: Drivetrain connects seamlessly with over 200 systems, like ERP, CRM, HRIS, accounting, and billing software, to eliminate manual processes. It automatically pulls information from banking platforms and accounting systems like QuickBooks or Xero for reconciliation. These inputs provide accurate cash flow forecasting, quarterly reports, and annual financial results.
• Real-time reporting and visualization: Drivetrain gives instant insights into your cash flow, helping you identify cash surplus or shortfall situations. You can use reports and visuals, like charts and graphs, to explain important metrics to investors and manage liquidity effectively.
• Connected three-statement modeling: With Drivetrain, you can create a three-statement model that links your income statement, balance sheet, and cash flow statement. Any changes you make to one statement automatically update the others, helping you see how those changes impact your cash flow.
• Compliance and security: Investors know the importance of data security.  Drivetrain meets all relevant financial regulations and uses robust security measures to protect sensitive financial data.

‍Learn more about Drivetrain and how it can help you take your investor relations to the next level with streamlined investor reporting and data-driven decision-making.