Using Trust and Transparency to Attract Investors


For businesses, trust and transparency are critical aspects of developing relationships with consumers and employees. Most businesses understand the need to assure potential customers that their product or service is exactly what it appears to be and that engaging with the company means that they will not be deceived or taken advantage of in any way. Trust and transparency, especially in the maintenance of relationships with clients, customers, and employees, is critical to the ongoing success and scalability of a business.

But what may be more difficult to conceptualize and manage is the way in which trust and transparency affect other stakeholders, such as potential investors. This is especially true for new startups that do not have the historical timeline to indicate prior success or the data that confirms the company’s viability. For those businesses, trust and transparency come in other forms that must be indicated in specific ways for investors to recognize the potential of your business idea and feel comfortable underwriting your venture.

Here we have gathered some ideas that look at what investors are looking for in deciding whether to subsidize a start up and show the way in which trust and transparency can play a key role in helping your company overcome an ever-increasing sense of wariness on the part of potential investors.

Investors will want to see your background in the industry and business experience, as well as that of your management team. Many small businesses fail because of weaknesses in the management team. This requires you to exhibit professional trust. Professional trust is the belief that a business, inclusive of its founders, employees, and management team has the technical competence and professional know-how to produce a well-designed and dependable product or to organize a service that consumers want and need.

Investors are looking to bankroll businesses who exemplify a level of proficiency and expertise that is high enough to warrant trust. In the end, investors want a return on their initial investment, and you will need to be able to provide clear, concise, and articulate explanations of how you will assure success. Having a degree or experience in the field you wish to engage will allow you to provide any information requested in ways that are complete and not overly simplistic.

Investors will want to see that not only is your product or service unique, but there is a large enough market potential to deem the investment worthwhile. Showing that you have done the necessary research to demonstrate a need for your product or service will let investors know that you are not asking them to put money into a “little” idea and that it has the potential to be a big success. This means you have acknowledged and studied your competition thoroughly, analyzing how you plan to contend with competitors and distinguish yourself in your industry. They will question what will give you the competitive edge

In this process, you are developing relationship trust. Relationship trust includes your interpersonal skills and the ongoing relationship you will build with your investors. Finding a way to ensure your potential investors that you will conduct yourself in a way that is transparent for their benefit. From dishonesty to inconsistency to lack of follow through, there are an unfortunate number of ways to break trust with your investors. Remember that investors expect to see a return on their investment, so developing realistic financial projections that how long it will take for the business to show a profit and for them to recoup their initial investment is critical. Investors look for a clear “exit strategy.” They want to see how they can make a profit and then move on to the next deal or transaction.

No matter how unique your product or service may be, you must show that you know your demographics and will reach your target market in an ongoing manner. Your pricing and sales strategy have to be clearly defined and in line with industry norms. Transparency as trust means being open about how your business conducts itself, not only in financial aspects but also in marketing strategies and everyday business transactions. Thomas Zaccagnino, founder of Muirfield Investment Partners, explains that there are many ways to bridge the gap in trust created by the technological boom by using these same technological advances to increase the level of transparency. Blockchain technology, for example, allows businesses to utilize a distributed ledger, increasing not only the speed of business transactions, but improves the security, the efficiency, and the accountability of companies.

All of this does not negate personal trust and transparency. Your reputation as a person and as a business owner is central to an investor’s belief in your company.  Ethical conduct and character will go a long way in showing that an investor is also buying into your honesty and integrity. Recognizing your need to hold yourself to a particular standard and showing a willingness to embrace accountability will help build the type of rapport required to develop a relationship with potential investors.

How do you see trust and transparency as central to investment potential? Feel free to comment.