How to keep your investors on side
How SME leaders can manage expectations, communicate openly and maintain productive relationships with investors
Ian Wylie Journalist, broadcaster, educator
Reading Time 4 minutes
Securing investment can be a milestone for a growing business. But the relationship between founders and their financial backers needs just as much attention after the money arrives as it did during fundraising.
‘Probably the biggest lesson I’ve learned is that you need to manage expectations before you manage performance,’ says Karsten Smet, CEO of ACI Group, a UK-based specialist in the sourcing and distribution of industrial chemicals and ingredients.
For SME leaders, that means communicating regularly, being transparent about difficulties, and understanding where investors’ interests might differ from their own.
Agree expectations from the outset
Dr Oksana Koryak, Director of the MBA at Cranfield School of Management, combines academic expertise in entrepreneurship and SME growth with a previous career in corporate and investment banking, including leveraged finance. She says one common mistake is for founders to go quiet once funding arrives, only reappearing when something goes wrong or more money is needed. Instead, they should establish how the relationship will work, what information investors expect, and how involved they want to be.
Investment agreements typically establish reporting requirements, but Koryak encourages founders to look beyond these formal obligations. Investors may offer valuable introductions, expertise, and advice, provided they understand where help is needed.
Smet also recommends distinguishing between ambitions, firm plans, and what the business can realistically deliver. ‘It’s very easy, particularly as an SME, to get caught up in an ambitious growth story and talk about where the business could get to,’ he says.
But investors need to understand the timeframe too. A shareholder seeking quick returns may have different priorities from management building a sustainable business over five or ten years.
Communicate regularly, not just when there’s trouble
Koryak suggests agreeing reporting arrangements early, with a consistent format that helps investors follow progress. A monthly update and fuller quarterly discussion can work well, although businesses facing cash pressures may need more frequent communication.
The information should be meaningful rather than simply extensive. For example, growing sales may appear encouraging, but investors also need to understand whether slower customer payments are putting pressure on cash flow.
Smet believes transparency is particularly important when performance disappoints.
‘Bad news doesn’t improve with age.’ He prefers an uncomfortable conversation early to explaining months later why nobody raised the alarm. His approach is to separate three things: what happened, why it happened, and what management intends to do about it.
Koryak similarly recommends telephoning investors promptly with significant bad news, then following up in writing. Leaders needn’t have every answer immediately but should explain when further information will be available.
Welcome challenge without surrendering judgement
Disagreements are inevitable when investors and management bring different perspectives to business decisions. ‘If you’re running a growing business and you never disagree with your investors, I’d probably question whether you’re having honest conversations,’ says Smet.
Rather than becoming defensive, he recommends understanding the concern behind an objection. An investor questioning expenditure might support the underlying strategy but worry about cash flow, timing, or the company’s ability to deliver.
Koryak advises focusing discussions on practical trade-offs. If investors want faster growth, can the business finance it and recruit the necessary people? If management proposes additional spending, what evidence supports the expected returns?
One compromise might be to make a smaller investment initially, reviewing progress against agreed milestones before committing further resources. Smet believes founders should listen carefully without automatically changing direction. ‘The advice I’d give another SME leader is, don’t confuse taking investment with outsourcing your judgement.’
Understand the strings attached
Founders also need to know precisely what control they retain. Koryak warns that investment agreements and Articles of Association may contain ‘reserved matters’, requiring investor consent for specified decisions. Majority ownership therefore doesn’t necessarily mean unrestricted decision-making authority.
Exit arrangements need particular attention. Tag-along rights can allow shareholders to participate in another shareholder’s sale, while drag-along provisions can require others to sell when specified conditions are met.
Board representation requires clarity. An investor-appointed director owes duties to the company and must exercise independent judgement, while confidential board information cannot automatically be shared with the appointing investor. Understanding these boundaries before accepting investment can prevent difficult disputes later.
Build a relationship based on trust
Ultimately, managing investors isn’t about keeping them happy at all costs. It’s about maintaining a constructive relationship in which both sides understand the business, communicate openly, and respect their respective responsibilities.
Koryak suggests an independent chair or adviser can help when disagreements become difficult to resolve. For Smet, investor confidence comes not from pretending everything is going perfectly, but from demonstrating that management understands the problems and has a credible response. ‘A healthy investor relationship should make the management team better,’ he says. ‘It shouldn’t make them frightened to make decisions.’
Ian Wylie Journalist, broadcaster, educator
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