The declining stock markets in 2000 and 2001 have made it more difficult for entrepreneurs to obtain the financing for new ventures and have had an impact on existing relationships between young companies and their investors. Investor relationship marketing addressing the specific and varying requirements of investors is crucial as professional investors in particular apply stringent criteria for investments and as it is becoming increasingly difficult for start-ups to raise funds . Entrepreneurs face significant difficulties when acquiring capital for a start-up . Having at their disposal a variety of potential sources founders sometimes fail to chose the optimal alternative. This can impose considerable limitations on growth and development potential, increase the susceptibility to crises and threaten the very existence of the company . Professional management of relationships to potential and actual investors ought to be one of the main focuses of entrepreneurs’ attention as inappropriate financing has been identified as the most frequent reason for the failure of new ventures .
Entrepreneurial activities considerably influence the growth of an economy and have a positive effect on prosperity . In the Federal Republic of Germany (FRG) small and medium-sized enterprises (SME), which most new ventures are , account for more than half of the gross value added of all businesses and for over two thirds of all jobs . SMEs are not only essential for labour markets. Because they can react faster and more flexibly to changing market situations they contribute to an economy’s ability to compete internationally. Since only a limited number of them survives – in Germany approximately 50% of new companies fail within the first five years – an economy must dispose of a sufficiently large base of young and growing ventures . A systematic investor relationship marketing for these ventures is essential for their survival and prosperity, because they help them to acquire the capital for sustaining loss-incurring periods and consolidating their operations. Investor relationship marketing for start-ups is particularly important because the investment can be a prerequisite for the establishment of the venture and ultimately a determinant for an economy’s base of new ventures.
Table of Contents
1. IN SEARCH OF CAPITAL START-UPS FACE A MULTITUDE OF CHALLENGES
1.1 THE QUALITY OF RELATIONSHIPS BETWEEN NEW VENTURES AND INVESTORS IS CRUCIAL FOR ENTREPRENEURIAL SUCCESS – AND VITAL FOR ECONOMIC PROSPERITY
1.2 START-UPS AND INVESTOR RELATIONSHIP MARKETING – DEFINITION OF RELEVANT TERMS
1.3 GOALS AND COURSE OF THIS STUDY
2. DEVELOPMENT OF THE REFERENCE FRAMEWORK FOR INVESTOR RELATIONSHIP MARKETING FOR START-UPS AND DERIVATION OF WORKING HYPOTHESES
2.1 DEVELOPING THE REFERENCE FRAMEWORK OF INVESTOR RELATIONSHIP MARKETING FOR START-UPS
2.2 OBJECTIVES AND TARGET GROUPS
2.2.1 Objectives
2.2.2 Target Groups
2.2.2.1 Business Angels
2.2.2.2 Venture Capitalists
2.3 DECISION VARIABLES OF THE INVESTOR RELATIONSHIP MARKETING MIX FOR START-UPS
2.3.1 Product-related Decision Variables
2.3.2 Price-related Decision Variables
2.3.3 Distribution-related Decision Variables
2.3.4 Communication-related Decision Variables
2.4 SEQUENTIAL ELEMENTS OF INVESTOR RELATIONSHIP MARKETING FOR START-UPS
2.4.1 Contacting potential Investors
2.4.2 Presentation
2.4.3 Due Diligence
2.4.4 Structuring the Deal
2.5 DERIVING THE WORKING HYPOTHESES
3. DESCRIPTION AND RESULTS OF THE SURVEY
3.1 DEVELOPMENT OF THE QUESTIONNAIRE
3.2 DATA COLLECTION AND SAMPLE DESCRIPTION
3.3 OBJECTIVES AND TARGET GROUPS
3.3.1 Objectives
3.3.2 Target Groups
3.4 DETERMINING DECISION VARIABLES OF THE INVESTOR RELATIONSHIP MARKETING MIX FOR START-UPS
3.4.1 Product-related Decision Variables
3.4.2 Price-related Decision Variables
3.4.3 Distribution-related Decision Variables
3.4.4 Communication-related Decision Variables
3.5 DETERMINING SEQUENTIAL ELEMENTS OF INVESTOR RELATIONSHIP MARKETING FOR START-UPS
3.5.1 Contacting Potential Investors
3.5.2 Presentation
3.5.3 Due Diligence
3.5.4 Structuring the Deal
3.6 CONSOLIDATED INTERPRETATION OF RESULTS
4. SUMMARY AND OUTLOOK
Research Objectives and Themes
This study explores the critical role of systematic investor relationship marketing for start-ups, particularly in the context of securing essential funding. The primary research objective is to develop a conceptual framework that integrates marketing principles with entrepreneurial finance to assist founders in navigating the fundraising process and enhancing their ability to acquire capital.
- Theoretical development of investor relationship marketing for start-ups
- Categorization and selection of investor target groups (Business Angels vs. Venture Capitalists)
- Application of the "Marketing Mix" (4Ps) to the fundraising process
- Analysis of the sequential phases of investor relations: from initial contact to deal structuring
- Empirical validation through expert surveys on critical success factors and practices
Excerpt from the Book
2.3.1 Product-related Decision Variables
The product dimension includes all decisions related to the market-oriented design of a company’s products or services offered to customers. The “service” a start-up offers in this respect can be seen as the investment opportunity in a company that carries a number of features critical for an investment decision. The customer, or the buyer respectively, in the specific context of start-ups searching for money in exchange for shares in the company are potential investors. Also because the nature of the start-up in the sense of a “good” to be offered to potential investors is an intangible one that supplies abilities in the form of personnel, material and immaterial resouces and is requiring the integration of the external factor, namely the potential investors, it appears to qualifiy for being classified as a service. In particular applies the process character of services to the sale of shares in the start-up.
It could be argued that if an investor buys a stake in a venture in the production industry, this investment rather carries the characteristics of a tangible asset. In reply of this argument can be stated that generally start-ups do not have many many assets and therefore the reasons for investors to purchase shares in the company is the growth and profit potential rather than the value of tangible assets.
Summary of Chapters
1. IN SEARCH OF CAPITAL START-UPS FACE A MULTITUDE OF CHALLENGES: Analyzes the environment for new ventures and establishes why formal relationship management is essential for securing capital.
2. DEVELOPMENT OF THE REFERENCE FRAMEWORK FOR INVESTOR RELATIONSHIP MARKETING FOR START-UPS AND DERIVATION OF WORKING HYPOTHESES: Establishes a theoretical model for fundraising, including target segments and the marketing mix, and formulates hypotheses.
3. DESCRIPTION AND RESULTS OF THE SURVEY: Details the empirical data collection from experts and evaluates the effectiveness of specific fundraising strategies based on collected means.
4. SUMMARY AND OUTLOOK: Consolidates the findings and offers final reflections on the professionalization of investor relations in the start-up lifecycle.
Keywords
Investor Relationship Marketing, Start-ups, Venture Capital, Business Angels, Fundraising, Marketing Mix, Investment Decision, Due Diligence, Entrepreneurial Finance, Valuation, Investment Agreement, Management Team, Signaling Theory, Strategic Management, Capital Acquisition.
Frequently Asked Questions
What is the core focus of this research?
The research focuses on applying professional relationship marketing principles to the specific challenge of raising capital for start-ups, viewing the investment opportunity as a service marketed to potential investors.
What are the primary target groups identified?
The study differentiates primarily between Business Angels, who often provide non-financial support and mentorship, and professional Venture Capitalists, who are driven more by growth potential and systematic return expectations.
What is the main goal of the investor relationship marketing framework?
The goal is to provide a systematic, stage-based approach that allows entrepreneurs to reduce the time and capital spent on fundraising by effectively targeting the right investors and communicating relevant success factors.
Which scientific methods are utilized?
The study utilizes a mixed-methods approach: deriving a theoretical framework from existing literature and validating this framework through empirical expert interviews with practitioners in Germany and Poland.
What is the role of the "Marketing Mix" in this study?
It categorizes fundraising into product-related, price-related, distribution-related, and communication-related variables, helping founders understand how to shape their offering for a competitive investment market.
Which specific "product" is being marketed?
The "product" is the start-up itself—its business idea, its management team, and its growth potential—which is presented as an investment proposition to potential capital providers.
How does the research assess the "bargaining power" of an entrepreneur?
The research emphasizes the "Relative Bargaining Power" (RBP) which shifts depending on the time remaining before the company runs out of cash (OOC), illustrating that timing in the relationship management process is critical.
What does the term "signaling" mean in this context?
Signaling refers to communication measures, such as the business plan or personal presentations, that founders use to credibly demonstrate the competence and trustworthiness of their team, thereby reducing investor suspicion caused by information asymmetry.
- Quote paper
- André Presse (Author), 2001, Investor Relationship Marketing for Start-ups, Munich, GRIN Verlag, https://www.grin.com/document/23901
