Why Communication is Important for Running a Successful Investment Business

What You’ll Read

• How strong communication skills can impact your investing business
• What should an investor communication strategy look like?
• Who should fund managers be communicating with?
• Why your communication strategy should be a key pillar of your investing business

Key Takeaways

• Investing in the private markets is a relationship business.
• Building trust with your investors through communication can lead to lasting relationships.
• How often a manager communicates with their investors will vary, but a successful strategy will follow a general formula with a consistence cadence.
• A manager’s communication strategy shouldn’t end with their investors. Instead, it should include investor prospects and the general public as well.

It’s no surprise that investing in the private markets is a relationship business. After all, private market investing is often referred to as an “access class.”

The best managers build strong, lasting relationships with their investors over the course of many years, and often decades. These relationships pave the way for future fundraising, portfolio company support, deal flow, and so much more. 

How do managers nurture lasting relationships with their investors? There is one key component to attracting and retaining long-lasting relationships - it’s the art of communication 👇

How strong communication skills can impact your investing business

One of the most effective ways to get your investors to trust you as a manager is through frequent and transparent communication.

As an emerging manager with a limited track record of performance, sharing your perspective on the investing landscape, updates on your portfolio companies, and thoughts on new trends and technologies can help potential investors get to know you better and understand your unique perspective as a manager. 

Building trust through communication creates the foundation for a strong relationship with investors, leading to future fundraising opportunities and investment support.

What should an investor communication strategy look like?

Managers face several decisions when creating their investor communication strategy. How often should I communicate? What should I include in my communications? Do they even want to hear from me?

Although the cadence and depth of communication vary greatly by manager, both syndicate leads and fund managers follow a general formula. 

How syndicate leads communicate with their investors

For syndicate leads, there are three key timeframes that comprise a manager’s communications strategy. 

1. Prior to fundraising for a deal

In the weeks leading up to the offering period of a syndicate deal, a manager will want to share their thesis on the company, often referred to as a “deal memo,” which includes market commentary, product analysis, team overview, risks, and more. 

The goal here is for the manager to relay their full thoughts on the prospective investment opportunity with their investors in order to give them a chance to participate in the offering. 

2. During the fundraising period

Keeping an open line of communication during the fundraising process is key. 

Oftentimes, key deal terms of the offering can change during the fundraising process, including other co-investors, pro-rata rights, the size of your allocation, and more. Investors should always have the most up-to-date information on the offering so they can make their own investment decisions based on all available information.

3. After the fundraising period closes

After the offering closes, the real work begins. Now, the company has accepted your investment and will typically update the syndicate lead on a monthly or quarterly basis. 

Although this varies, each syndicate lead will decide how frequently to update their investors on the company’s changes. Regardless of how often a manager decides to communicate with their investors, it’s best to keep it consistent so investors know what to expect. Investors will always value consistency.

How fund managers communicate with their investors

Since fund managers decide where to allocate the funds that they manage, there is not as much communication prior to an investment occurring. Rather, fund managers will commonly send investor updates that highlight the activities of the entire fund based on the original investment strategy that the manager raised capital on. 

These investor updates vary in frequency but commonly occur quarterly. Although each fund manager’s investor updates will be different, some important topics to touch on include;

• Market commentary
• New investments 
• Performance metrics
• Portfolio updates

On the topic of transparency, what both syndicate leads and fund managers should keep in mind is that it’s critical to share both the positive and negative updates with their investors.  

Investors look at your relationship as a partnership. In order to have an effective partnership, managers and their investors need to have transparency and trust with each other. 

As a responsible steward of investor capital, managers should make their investors aware of potential risks, and recent updates of any less-than-desirable news. 

Based on where the manager is located, there may be regulatory or fiduciary responsibilities to abide by as well with respect to the manager’s communication strategy. Additionally, managers should always be cognizant of company confidentiality. Throughout the course of investing in private companies, managers will come across many instances of data and privacy concerns that company executives do not want you to share with others, including your investors. 

Who should managers be communicating with?

It’s pretty obvious that managers should be communicating with their investors, but it doesn’t stop there. 

As a fund manager, when you’re not investing capital, you’re probably thinking about raising capital. Bringing new LPs into your syndicate or fund allows you to continue investing in startups and growing your investment business. Because of this, much of your job is “selling” or pitching new investors. 

So while you have a responsibility to communicate with your existing investors, it’s also in your best interest to communicate with prospective investors as well. You’ll want to send them updates, albeit slightly different than your regular updates, to keep them aware of what’s going on, the progress you’ve made, and how you’re thinking about the future market conditions and future fundraising. 

Without this, you’ll have a much harder time raising follow-on capital from new investors. 

Lastly, managers should be sharing their thoughts with their larger community. 

There’s no way to know for sure the number of potential investors or founders that you aren’t yet connected with. By sharing consistent content with the broader public, you’re able to open up potential relationships with people who want to be part of your work, whether it’s a future investor, partner, or founder that you’re investing in.

Why your communication strategy should be a key pillar of your investing business

When you decide to raise investor capital, you begin a partnership that will likely last many years, if not decades. 

Maintaining a healthy partnership requires open and transparent dialogue regarding the happenings within your investing business. 

Importantly, the more you communicate with your investors, the more opportunities you give them to help you. This is a significant reason to lead with open communication. Your investors are there to support your partnership, and the more they know the more they can support you.

This includes, but is not limited to, new introductions and deal flow opportunities. By forging strong and transparent relationships with your investors, you are more likely to attract new opportunities and high-quality deal flow, growing your investing business sustainably over time. 

As a manager, dedicating time to planning your communication strategy will pay dividends as you build enduring relationships with your investors and educate the broader community on your investing thesis. 

How Zest Can Help

Zest makes it easy for emerging managers to digitize their SPV setup process and manage their administrative tasks.

Zest is digitizing private market transactions, building tools to streamline how entrepreneurs, funds, and investors transact. Our platform is designed to save you time and reduce administrative costs, simplifying the end-to-end investment process.