It’s About Engagement, Not Numbers

October 21st, 2013 / Comments Off on It’s About Engagement, Not Numbers

Numbers usually matter. There are always 11 players on a football team. There must be at least six, but no more than 12 jurors on a jury. But when it comes to the right number of investors, there are no hard and fast rules.

The general wisdom on the right number of investors is that “less is more.” This is mostly because of the overhead required to chase many investors. You’ll need to check in with investors in the next rounds of financing, whenever you change the company charter and in numerous other instances, such as the sale of the company. Tracking down so many people so frequently can be onerous.

At the Webb Investment Network, we have an average of three to five investors who invest alongside us on any deal. We are very aware of the limited bandwidth CEOs have to chase investors, so we do our best to minimize the stress, by sending in collective requests. However, having a group of investors also provides the CEO with a huge network available to them for advice, assistance or introductions.

I’ve seen CEOs manage multiple investors beautifully and get the most out of a diverse capital table. One of the best practices a CEO can do is send a monthly email update to all investors that includes an update on how things are going and asks for help on certain things. One CEO effectively did this and applied the principles of gamification to show which investors did the most to help—something that made engaged investors feel appreciated and inspired others to step up and do more.

The question to answer is not really about how many investors, but ultimately it’s about how engaged, and how responsive you want the investors to be. It’s the quality of the deal (the terms, preferences, board seats, etc.) and the interactions with investors that matter.

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