Private Equity & Venture Capital Insights: Lender and Investor Relations Tips for Struggling Portfolio Companies

When a company in your portfolio is struggling, there are many stakeholders who feel the impact. Investors, creditors, lenders, owners, directors and employees all have unique concerns regarding the troubled business.

You’ll communicate directly with most of these stakeholders throughout the financial and operational restructuring, so knowing how to clearly deliver your message and restore trust is critical to achieving a successful business turnaround.  

Today, we’re sharing a few lender and investor relations tips to help you confidently navigate this communication.

Understanding the Different Constituent Needs

Before you can move forward with a business turnaround, it’s important to understand how a struggling company affects different stakeholders.

First, if you’re a lender, you want to see your invested capital returned if a company flounders. At the very least, you expect to be paid back. Likewise, investors want to recover their capital, as well.

If you’re a creditor, you want your money in exchange for goods and services, and if you’re an owner, you want to avoid guarantees and recoup as much of your equity as possible.

Then, there is the workforce. Employees want to keep their jobs amid the chaos, while directors are seeking to maintain day-to-day operations, dodge risks and avoid litigation. 

While this list isn’t comprehensive, it helps to explain the mindset of many of the stakeholders impacted by a struggling business. Having empathy at this crossroads can help you approach each interaction strategically and judiciously.

The Importance of Restoring Trust

As soon as you discover that a portfolio company is struggling, one of the most important steps to take is to restore trust with the company’s investors and lenders. 

When everyone is on the same page and working together, it’s easier to renew cash flow. Moreover, when lenders have confidence in a company, negotiations run more smoothly. In turn, you’re able to ensure continued investment and raise incremental capital for the struggling company as it moves forward in financial restructuring. 

While you need investors’ and lenders’ continued support to move forward successfully, they may be a little hesitant. How can you convince them to stay the course and weather this setback?

Investor Relations Tips

As a private equity investor or venture capitalist, you have an advantage when it comes to understanding the needs of fellow investors. Think about what you look for when deciding whether to keep an investment, and communicate this same information to other investors:

1. Emphasize the Likelihood of Future Cash Flows

Naturally, investors will prioritize companies that offer a suitable internal rate of return, as well as those that enable positive impact investing. As such, it’s important to emphasize the troubled company’s history of successful process improvement and change management, and highlight the resources they have allocated toward future improvements and restructuring. Be specific about financial goals, and then share the ongoing progress towards achieving them.

2. Point to the Company’s Revenue-focused Management Team

Investors know that for a company to complete a successful turnaround, there must be a steady stream of revenue coming in. It’s important to demonstrate that the company has a capable, market-oriented management team dedicated to this task.

3. Explain Some of the Viable Exit Options

Viable exit options deliver a high ROI at the time of resale to put investors’ minds at ease.

4. Ensure Frequent Communication

We recommend establishing clear expectations around communication frequency. Investors expect frequent financial and non-financial updates and timely, in-depth reports.

5. Establish a Feedback Loop

This feedback loop should include the portfolio company, the board of directors, fund managers and investors. This will give you the insight necessary to adapt your enterprise strategy as the market and conditions change.

Lender Relations Tips

When a company in your portfolio is experiencing financial stress, lenders play a key role in reversing this track. To produce favorable investment returns, leverage is crucial.

If you are a lender or banker, then following these lender relations tips may feel like second nature. Your fellow lenders appreciate the same honesty and transparency you look for when deciding whether to continue lending money or cut ties.

1. Outline the Portfolio Company’s Future Goals

You should instill confidence that the company has both a financial and operational plan in place to reduce its debts and deleverage the enterprise. If necessary, outline some of the potential process improvements you identified as part of your business process reengineering efforts.

2. Maintain Open and Honest Communication About all Financial Details

You can streamline communication and enhance lender profiles by automating these processes in a centralized ERP system. Here, you can generate and share financial reports as well as track meetings, phone calls and emails.

3. Create a Mutually Beneficial Relationship

Relationships with lenders should be built on partnership and teamwork. For example, it’s important to outline a variety of lending options so lenders can choose the option that works best for them.

Optimizing Your Investor and Lender Relationships

As you begin the financial and operational restructuring process, it’s essential to maintain strong relationships with all affected parties. These investor relations tips combined with strategies for navigating lender relations, can help you secure capital when you need it most – when a company is struggling but has opportunity for business transformation once it is stabilized and turned around.

Our business turnaround consultants can help you bring a struggling company to a state of stability where it can start thinking about growth and innovation. From there, we can help you decide if business transformation, ERP implementation or another digital strategy altogether makes sense for the company. Request a free consultation below to learn more.