Raising Funds? Avoid These 7 Costly Investor Relations Mistakes

Raising funding is no easy feat, especially for first-time founders. You need a solid business plan, traction to demonstrate market fit, and the skills to pitch effectively. Yet founders often trip up when it comes to investor relations — the ongoing communication and relationship building after that first check clears.

“We’ve seen companies make mistakes managing investors that have cost them dearly down the line,” said Michael Mohammadi, CEO and co-founder of StormX, an investor relations platform. I sat down with Mohammadi and his co-founder, Eduardo Fonnegra, to get their tips on avoiding common investor relation pitfalls.

1. Don’t get caught up in short-term fundraising

It’s tempting to focus on immediate fundraising needs without considering the long-term ramifications of taking on certain investors. “A lot of founders get caught up in just meeting the first couple of investors who can give them money,” said Mohammadi. However, not all money is created equal.

The wrong investor partner can hurt you down the road, especially if their priorities end up misaligned with the direction you want to take the company. Evaluate investors thoroughly, not just based on the size of their check, but whether they can provide strategic advice and introductions that support your vision. With the right investor relationships, fundraising becomes a byproduct of building something great.

This tendency to prioritize short-term gains over long-term success is an example of the cognitive bias known as loss aversion. Founders are so anxious to avoid the pain of missing payroll or running out of cash in the near term that they make hasty decisions on investors that cost them later. Being aware of this bias can help founders take a balanced perspective.

2. Don’t neglect ongoing investor relations

“A lot of startup founders think that the only way investors will respond favorably is if they provide their best pitch on first contact,” said Mohammadi. Unfortunately, this Shark Tank-style approach often backfires. Don’t think of investor communication as a one-and-done sales job. The goal is to establish authentic relationships based on mutual understanding.

Schedule regular investor updates through calls and newsletters. Seek investor advice to strengthen your business model. And involve them in important strategic decisions as valued partners. By keeping your investors engaged and informed, you build crucial trust and support for when you eventually need to raise capital again.

Here, founders can fall prey to confirmation bias — a cognitive bias that involves seeking out information that validates their existing perspective while ignoring contradictory evidence. After landing an initial investment, founders feel confirmed that their model and pitch work. Yet neglecting ongoing investor relations undermines long-term success. Being cognizant of this bias is key.

3. Fix operational weak spots before fundraising

The strength of your operations will directly impact fundraising success. “We want to see companies have all their positioning in order before connecting them with investors,” said Mohammadi.

Yet some founders rush into pitching before getting their house in order. Have your pitch deck, financials, KPI dashboards, and other materials ready for investor scrutiny. Build up marketing and sales to demonstrate traction.

Work on any weak spots in your team roster or business processes, and show scalability. The more you button up operations on the front end, the easier fundraising becomes on the back end. Investors want to put money into startups primed for growth.

4. Don’t focus exclusively on fundraising

At the end of the day, fundraising is not the end goal. It’s a means to grow your business. “Too many founders focus on pitching, pitching, pitching. They need to spend more time on actual relationship building,” Mohammadi emphasized.

Rather than fixating on closes, think about how you can forge durable relationships with investors. Successful investor relations depend on cultivating a network that supports you during good times and bad.

Even if an investor passes, stay in touch. They may connect you with others or come back around in the future. With strong relationships, fundraising takes care of itself.

5. Pick investors who truly understand you

Not all investors are created equal. Beyond capital, you want backers who grasp your vision and can provide strategic guidance. Vet potential investors thoroughly, just as they’ll be vetting you. Look for overlaps in values, priorities, and working styles. Seek warm introductions from other founders and advisors to find the best fit.

Taking the time to choose compatible investors reduces friction down the line. With investors who share your mindset and interests, you don’t have to worry about pushing your company in directions that don’t feel right.

6. Never underestimate the power of community

Investor relations are undergoing a shift from a VC-centric model to community-driven funding. “I think crowdfunding and blockchain will revolutionize startup investing,” said Mohammadi.

Platforms like Republic and Wefunder make it easier than ever for founders to connect directly with customers, fans and smaller-dollar investors rather than relying solely on institutional capital.

Build an engaged community that wants to literally invest in your success. Share progress transparently, solicit input, and reward loyalty. A grassroots investor base will provide funding as well as invaluable feedback to hone your product-market fit.

7. Embrace investor relations as an ongoing journey

The companies with the strongest investor ties don’t view fundraising as a one-off event. They embed communication with investors as an integral, ongoing component of operations. Making investor relations a habit avoids scrambling to raise capital reactively and build rapport when your back is against the wall.

Successful investor relationships are earned over time through consistent outreach and alignment on values. Maintain these connections during funding downtimes so they’re primed to move when it counts. With disciplined nurturing of your investor network, you’ll be “fundraising ready” no matter what the markets throw at you.

Leverage these tips, synthesized from my in-depth conversation with StormX’s founders, to build investor relationships that fuel sustainable startup success. Avoiding missteps like focusing on short-term fundraising, neglecting ongoing communication, and not addressing operational weaknesses beforehand will pay dividends as your company matures.

Investor relations are challenging but immensely rewarding when done right. With commitment and savvy relationship skills, you can secure the backing to turn your vision into reality.

Contributed to EO by Dr. Gleb Tsipursky, who helps leaders use hybrid work to improve retention and productivity while cutting costs. He serves as the CEO of the boutique future-of-work consultancy Disaster Avoidance Experts. He is the best-selling author of 7 books, including the global best-sellers Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters and The Blindspots Between Us: How to Overcome Unconscious Cognitive Bias and Build Better Relationships. His newest book is Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage. His expertise comes from over 20 years of consulting, coaching, and speaking and training for Fortune 500 companies from Aflac to Xerox, and over 15 years in academia as a behavioral scientist at UNC-Chapel Hill and Ohio State. A proud Ukrainian American, Dr. Gleb lives in Columbus, Ohio.

For more insights and inspiration from today’s leading entrepreneurs, check out EO on Inc. and more articles from the EO blog. 

The post Raising Funds? Avoid These 7 Costly Investor Relations Mistakes first appeared on The EO Blog.

The post Raising Funds? Avoid These 7 Costly Investor Relations Mistakes appeared first on The EO Blog.