- Over communicate. If you have a small number of shareholders keep them abreast of the process and share key terms early, including before there is a formal termsheet. You don’t need to go overboard and report every investor meeting, but do keep the updates regular. If you have lots of shareholders try to find one or two who will represent the rest and treat them as above. Explain to the others how the process is working and send them updates at key moments, including when you decide how much you will raise, when you accept a termsheet and when you will need them to review documents.
- Understand the appetite to follow on and make sure there is sufficient space in the round to accommodate everyone who wants to take up their pre-emption rights. This isn’t always easy. Existing investors may have a hard time deciding how much they will follow on until the round has taken shape and your new investor may want to take most of the round for themselves. Persevere. Remember it was your existing investors who supported you first.
- Make sure that at least your key shareholders are aware of anything that is likely to be controversial and don’t take silence as assent.
Finally, it’s not all on the founder. Existing shareholders have a responsibility too. CEOs run companies and interfering, being too needy for information, or offering unwanted advice is definitely not best practice and makes management less likely to give regular updates.
UPDATE: I just updated point 2 to say that existing investors should be accommodated up their pre-emption rights – i.e. to take a percentage of the round equivalent to their current stake in the business. That’s a fair principle recognised in company law. I don’t think there is any general obligation on founders to make space in the round for existing investors to invest more than this and increase their stake in the company – no matter how helpful they’ve been.