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How Founders Can Manage Investor Relations During A Recession

Illustration of man shaking hand of woman on monitor.

By Matt Cohen

As we continue into an era of economic uncertainty, managing communication with investors is crucial for the success of a startup. In my experience working with founders, I’ve found a few key ways that startups can manage investor relations to foster growth during a downturn.

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First, it is important for startup founders to be transparent with their investors about the company’s financial situation and any challenges it is facing. Financial performance updates as well as any cost-cutting measures that have been implemented should be communicated regularly. By being transparent, startup founders can help build trust with their investors and demonstrate their commitment to financial responsibility. In tandem, investors are able to offer more support if they are aware of the specific challenges leaders are facing.

Matt Cohen of Ripple Ventures
Matt Cohen of Ripple Ventures

Startup founders should have a clear and realistic plan for navigating the recession and positioning the company for future growth. This includes a detailed understanding of the company’s financial needs and a plan for how to address any financial challenges. Investors want to see that the company has a clear and actionable plan for weathering the recession and emerging stronger on the other side.

Founders, keep your decks fresh

Contrary to popular belief, founders should remain proactive in seeking out new sources of funding, such as venture capital, angel investors, debt financing or other sources of capital. During a recession, investors may be more cautious so it is crucial for startups to keep their investor decks fresh and conversations active to be top of mind when money is flowing in again. This can include reaching out to investors who are already on the cap table, as well as exploring alternative forms of financing such as crowdfunding, grants or debt financing.

Be prepared for tough decisions

Unfortunately an economic downturn means tough decisions must be made. Startup founders should also be prepared to make difficult decisions in order to preserve the company’s financial stability during a recession. This may include layoffs, salary reductions or other cost-cutting measures. While these decisions can be difficult, they are often necessary to ensure the long-term survival of the company. Startup founders should communicate these decisions in a transparent and empathetic manner and explain how they will help the company to survive and thrive during the recession. Investors know these choices are hard and will respect your ability to execute them well.

Build relationships

Lastly, founders should also focus on building relationships with their investors. Strong relationships with investors can provide a source of support and guidance during a recession. Startup founders should keep investors informed of their progress and seek feedback on their plan for navigating the recession. They should also be open to suggestions and constructive criticism from investors, and be willing to incorporate feedback into their plan.

Managing communication with investors is always important for startup founders, and even more so when times are tough. Founders who are transparent, prepared and have a strong direction of how to move forward can increase their chances of success and position the company for future growth.

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Matt Cohen, founder and managing partner at Ripple Ventures, was founding investor of Turnstyle Solutions, which was acquired by Yelp in 2017. He is a frequent contributor to Crunchbase News.

Illustration: Dom Guzman

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