Communicating with investors is a needed skill for company founders
Communicating effectively with investors is an essential skill for company founders, not only in the early stages of growth, but as the enterprise, and the relationship, evolves.
One of the most important facets of investor communication is providing timely updates to help maintain backers' confidence in their decision to back an enterprise – particularly in the life sciences sector, where the ramp-up to profitability is often long and perilous.
For any new life science venture, communicating effectively with investors requires belief in the mission, and that conviction needs to be based on solid scientific evidence, says Mike Beckloff, president of Beckloff Associates, a Kansas-based consulting firm. “I tell our clients you have to prove the science to yourself first; so you believe it and you can explain it to whoever your partners might be.”
Once investors are on board, frequent communication is still essential, Beckloff says. “The more successful companies I've seen are the ones that communicate frequently with shareholders. You need to be able to communicate, 'Here's what we plan to do' – although you can't be fully transparent; there still needs to be a certain amount of confidentiality. Lay out the plan for investors and follow up with regular communication that shows you are working the plan and doing what you said you were going to do.”
Managing investors' expectations is important, so that backers have a realistic view of what to expect on the way to profitability, including time frames, says Kim Popovits, CEO of Redwood City, Calif.-based Genomic Health. “You need to think about what expectations you may be setting. You might have to tell a (prospective investor), 'If your expectation is to turn your investment into 10 times as much in the next 10 years, don't invest in our company; otherwise we are going to disappoint you.' When we started our company, we were very clear about how our revenue would grow over time and the length of our runway.”
Investor expectations also play into an entrepreneur's choice of partners, Popovits says. “Your business model could fail unless you have the right investors who share your long-term vision and understand your value proposition.” When seeking financing, “It can be hard to sit back and say 'Is that money I want?' but you really need to think about that.”
Popovits says convincing investors that a new drug or device will be viable in the marketplace requires more than proving efficacy and safety. Life science startups also need to prove that providers will change previous behaviors and use a new product. When her firm introduced its Oncotype DX test to assess the likelihood of breast cancer recurrence, “payers told us we didn't need to sell them on the idea that breast cancer was being over-treated; they knew that. (But) they didn't believe we would be able to change (providers') behavior.” The firm was able to overcome that hurdle by conducting decision-impact studies both in the United States and abroad. The results showed that the test resulted in treatment decisions changing 37 percent of the time, Popovits says.
On a positive note, experienced life science investors are usually prepared to deal with unexpected complications that may crop up along the path to profitability, Beckloff notes. “When people invest, you have to communicate, 'This is our best judgment at this point.' The reason there is an 'R' in 'R&D' is that certain things will happen that will delay a program. Most seasoned investors understand that things may take more time than expected.”